At its meeting today, the Monetary Policy Committee (MPC) voted to maintain the asset purchase facility at £375bn and keep the base interest rate at its historic low of 0.5% – where it has sat since March 2009.
The Bank last extended its QE programme in July, when it added £50bn. The gilt purchases from this bout ended in November, leading some to expect the MPC to boost QE to £400bn or £425bn.
However, since the last extension a number of indicators have suggested the UK economy is in better shape. Most notably, a preliminary estimate from the Office for National Statistics said GDP grew by 1% during the third quarter, a faster pace than most economists expected.
IHS Global Insight chief UK and European economist Howard Archer said: “It is likely that the MPC decided to hold off from more QE this month due to a combination of a better-than-expected rebound in GDP in the third quarter, belief that the Funding for Lending Scheme is yet to fully impact and some concern that consumer price inflation will move back up in the near term and could prove sticky thereafter.”
Capital Economics chief UK economist Vicky Redwood added: “Another, more worrying, possibility is that the committee held fire today because it thinks that it has reached the limits of what monetary policy can achieve.
“October’s minutes showed that some members thought that, although QE might lower long-term yields further, these falls might give little boost to the economy.”
Both economists expect the MPC to add to QE next month or at the start of 2013, as the economy is likely to need further stimulus. There is also speculation that the Bank will consider other, more unconventional means of stimulus if it aims to continue supporting the recovery.
Azad Zangan, European economist at Schroders, commented: "We expect today’s announcement to mark a pause in QE rather than an end to the programme. The Bank of England’s growth forecast for 2013 and 2014 remain too optimistic, which could lead the Bank to restart its asset purchase programme.
“However, if the Government’s Funding for Lending Scheme gains traction in boosting lending and demand in the economy, then the Bank may instead favour this form of stimulus over the purchase of gilts.”
