BoE rejects stimulus amid inflation fears
THE Bank of England (BoE) voted yesterday not to give Britain's struggling economy another injection of cash as concerns over stubbornly high inflation outweighed the risk of a prolonged recession and renewed dangers from the eurozone debt crisis.
The halt to quantitative easing asset purchases, or QE, may make life more difficult for Britain's Conservative-led ruling coalition, which was battered in local elections last week and relies on loose monetary policy to soften the pain of austerity.
With the eurozone crisis escalating again after the Greek elections, a number of economists still think the central bank will open the taps again later this year. However, better news from companies pointed to some resilience in the economy.
Britain's economy has not fully recovered from a slump caused by the 2007-2009 financial crisis. But after buying £325bn of government debt with newly created money, £50bn of which was bought in the last three months, the bank judged that its policy stance is supportive enough for now.
Sterling surged to near a three-and-a-half year high against the euro and gilts extended their losses, far underperforming German government debt.
The central bank also left its key interest rate unchanged at a record low 0.5pc. Both decisions had been widely expected, though a significant minority of economists still think the BoE may eventually do more QE.
"With economic conditions subdued, and signs of euro area tensions building again, another round of QE cannot be ruled out," said Ian McCafferty from CBI. "But we expect the recovery to be on a firmer footing in the second half of the year as inflation eases and the global economy strengthens." (Reuters)