MPC unlikely to drop rate or up QE, say analysts

 
Ben Southwood
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ANALYSTS expect the Monetary Policy Committee (MPC) to hold fire on Thursday, when it decides whether to increase quantitative easing (QE) or reduce the bank rate, or both.

“In terms of immediate policy changes, August’s meeting of the MPC appears to be a non-event despite much sharper than expected GDP contraction of 0.7 per cent in the second quarter,” said Howard Archer at IHS Global.

“The MPC indicated in the minutes of their July meeting that they had no plans to bring interest rates down from their current level of 0.5 per cent in the near term at least,” he added.

Vicky Redwood at Capital Economics agreed that the MPC was unlikely to act, though she did expect both more QE and an interest rate cut by the end of the year.

The rate has stood at 0.5 per cent since March 2009, the lowest in its entire history, while the Bank has purchased £325bn of financial assets, and is set to purchase £50bn more over the coming four months.

In its most recent meeting, as well as discussing and approving asset purchases, the MPC also considered but roundly rejected a rate cut, citing concerns it could actually reduce the funds available for lending, by destroying depositors’ incentives.

But Michael Saunders and Ann O’Kelly at Citi were in favour of both further QE and another cut in the bank rate.

“We believe there is a good case for the MPC to cut [the] bank rate further, but the MPC still seem reluctant to act,” they said.