Uncertainty will see QEand rates held

QUANTITATIVE EASING (QE) and interest rates should both be kept on hold this month, according to a majority of City A.M.&rsquo;s shadow monetary policy committee (MPC) ahead of the Bank of England&rsquo;s decision due at midday today.<br /><br />While seven members voted for no change, Henderson New Star&rsquo;s Simon Ward, who advocates suspending QE, argues that asset price strength and sterling weakness are evidence of excess liquidity in the UK economy.<br /><br />City A.M.&rsquo;s editor Allister Heath thinks that the pace of quantitative easing should be slowed until it has come to a stop.<br /><br />Of the seven that think no action should be taken, three think that there should be a bias towards more asset purchases in the coming months, while Lloyds TSB&rsquo;s Trevor Williams says that QE should be expanded next month.<br /><br />The majority of the shadow committee cite continued uncertainty regarding the sustainability and the strength of the economic recovery as well as the weakness in the money supply.<br /><br />The Bank of England is not expected to make any moves on monetary policy this month. City analysts believe the MPC will wait until next month when it has a fresh set of inflation figures and the current QE programme has run its course to chart its next move.<br /><br />The committee will, however, have paid heed to the poor industrial production data that was released earlier this week.<br /><br />But as Philip Shaw at Investec notes &shy;&ndash; who is not a member of this paper&rsquo;s shadow monetary policy committee &ndash; this does not mean the monetary policy debate has gone quiet.<br /><br />He points to continued questions over reserve remuneration policy, saying he would welcome a more productive circulation of bank reserves.