As widely expected, the Bank of England left the interest rate unchanged at 0.50% and the QE program at 325 billion pounds.
What the UK’s monetary policy committee did is raise the level of uncertainty by saying that the current expansion of the QE program will run for another month. And what next?
After a long period of leaving the Asset Purchase Facility (or quantitative easing) unchanged at 200 billion pounds, policymakers raised it to 275 billion in October. They then predicted it would run its course by the end of January.
When January came to an end, the 75 billion pounds were indeed spent. And then, the MPC announced another expansion in February, by another 50 billion.
And now, the prediction is for a run until the end of April / beginning of May. When no pound printing is active, a new round could begin, or not.
What are members thinking of? We will know in two weeks time. In recent decisions, there were two members, Adam Posen and David Miles, who supported a further expansion, even before the current batch is completed.
Will they convince the others in a time where there’s no QE?
Weakness in the economy is seen through a negative GDP in Q4 2011: the British economy contracted by 0.3% – a figure which was initially better. A more recent sign of weakness was seen from the manufacturing production in February, published just today. It dropped by 1%, worse than expected.
On the other hand, the hawks also have ground to stand on: inflation remains above target, and they still might want to depress it. In addition, PMI figures published for March show a rising strength of the economy, in forward looking indicators.
This includes the important services sector, as well as the manufacturing sector, in contrast with the the manufacturing production indicator.
So how will the MPC act? More pound printing will weaken the pound. No pound printing will let it rise.
Apart from the meeting minutes, the UK will release employment and inflation till then. The call remains close.
For more on GBP/USD, see the British pound forecast.
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