Britain on course for more economic stimulus
LONDON — Britain’s recession-hit economy remained on course for more cash stimulus despite an improving employment picture, minutes from the Bank of England’s latest monetary policy meeting showed Wednesday.
Minutes from the BoE’s meeting at the start of August revealed that all of its nine policymakers voted to keep the central bank’s main interest rate at a record-low 0.50 percent.
They also voted unanimously to keep the central bank’s quantitative easing (QE) cash stimulus programme at a level of £375 billion ($584 billion, 476 billion euros).
However, the decision to refrain from more QE cash was “finely balanced” for some members of the Monetary Policy Committee (MPC), according to the minutes.
Markets are also pricing in the prospect of fresh stimulus measures from the European Central Bank, US Federal Reserve and Beijing as the global economy falters.
A positive for Britain meanwhile came Wednesday in the form of an improving jobs market. Official data showed the country’s unemployment rate fell to 8.0 percent in the quarter to June from 8.1 percent in the three months to May thanks to an Olympics jobs boost.
The number of unemployed people fell by 46,000 to 2.56 million, the Office for National Statistics added in a statement.
Thousands of temporary jobs were created as a result of the London Olympics that ended on Sunday — providing a boost to Britain’s recession-hit economy.
“Although these numbers may have been helped a little by the Olympics, the broad story is that the labour market continues to outperform the economy, which official data show has been declining for three quarters,” said Investec bank analyst Philip Shaw.
Amid rising inflation and negative gross domestic product (GDP) output in Britain, Shaw said he felt the “MPC will give the green light for another £50 billion of QE, most likely when the current programme expires in November.”
The MPC had already voted in July to increase the QE asset-purchasing programme by an extra £50 billion over four months to November — bringing the total to £375 billion since it began the stimulus project in 2009.
The committee maintained the status quo in August as it also sought to gauge the impact of the government’s £80-billion ‘Funding for Lending’ (FLS) scheme that is also aimed at lifting retail bank lending.
Under QE, the Bank of England creates new cash to purchase assets such as government and corporate bonds with the aim of boosting lending and stimulating economic activity.
“The committee discussed whether it was appropriate to expand or continue with the programme of asset purchases it had agreed at its previous meeting,” the minutes read.
“For some members the decision was nevertheless more finely balanced, since a good case could be made at this meeting for more asset purchases.”
The BoE added that recent indicators for the manufacturing and services industries had been weak, suggesting GDP output would remain pressured between July and September, or third quarter.
The Bank of England last week slashed its forecast for British growth this year to close to zero percent, saying the greatest threat to recovery came from the eurozone crisis.
Britain is not a member of the eurozone but the bloc is its major trade partner. The country meanwhile escaped a deep downturn in late 2009 but fell back into recession at the end of 2011.
Latest official data showed GDP slumped 0.7 percent between April and June from the first three months of this year.
Annual inflation in Britain meanwhile rose unexpectedly last month to 2.6 percent — above the BoE’s 2.0-percent target.
“Inflation was… likely to remain close to the target in the coming months,” the bank’s minutes said.
“The minutes of August’s MPC meeting support our view that more policy stimulus is likely before long,” said Vicky Redwood, an analyst at Capital Economics research group.
“Admittedly the vote to leave policy unchanged this month was unanimous, but this was always likely given the asset purchases currently underway won’t be completed until November,” she added.