Strong GDP growth dashes chances of further QE
THE UK’s unexpectedly strong growth last quarter will mean the Bank of England will keep the presses off and delay any restart to quantitative easing (QE), according to City economists.
Preliminary growth figures released yesterday showed that the economy smashed consensus forecasts of 0.4 per cent to surge 0.8 per cent from July to September. The news prompted numerous City economists to up their growth forecasts for 2010 to around 1.7-1.8 per cent.
Above-trend growth coupled with above-target inflation will leave the Bank with little reason to resume asset purchases, strengthening Andrew Sentance’s hawkish stance that the Monetary Policy Committee (MPC) should instead raise interest rates.
Barclays Capital’s Simon Hayes says: “It will be difficult to motivate monetary loosening this month – it’s off the cards for the rest of 2010.”
But with PMI surveys trending downwards and the housing market uncertain, the fourth quarter is widely expected to bring a slowdown and renewed calls for QE. IHS Global Insight’s Howard Archer says that it remains “a serious possibility should growth slow markedly over the coming months”.
Critics suggest that it is not clear that QE would effectively stimulate the economy, especially with high levels of inflation but chancellor George Osborne has made it clear that he would support a decision by the Bank to complement fiscal cuts with monetary expansion.