views

Wait-and-see MPC leaves monetary policy unchanged

THERE was little surprise yesterday when the Bank of England’s Monetary Policy Committee (MPC) chose to keep interest rates on hold and the stock of asset purchases unchanged at £200bn.

After it chose to pause its emergency quantitative easing policy last month, the Bank was widely expected to be in a wait-and-see mood this month.

Strong purchasing managers’ indices this week combined with the upward revision to GDP growth in the fourth quarter will have only encouraged the Bank to hold fire on any adjustments to monetary policy.

Many economists expect further changes to quantitative easing to be made quarterly, in inflation report months. However, Charles Davis, senior economist at the Centre for Economic and Business Research (CEBR), said that monetary policy was in limbo until the scale and pace of fiscal tightening becomes clear.

The weakness of sterling is also likely to be a factor in the Bank’s decisions but Commerzbank’s Peter Dixon said: “Any further weakening of sterling will produce a further easing of monetary conditions, and the Bank is thus unlikely to engage in any additional action until such times as the currency stabilises, for otherwise it may risk unwarranted policy easing.”

However, the minutes of February’s decision showed that the decision to pause was finely balanced for some MPC members. The decision to pause this month might have been equally difficult and we will get the voting breakdown on 17 March.