BoE continues asset purchase plan
4th June 2009
As widely expected, the Bank of England left the UK Base Rate steady at 0.50% today, refraining from expanding its quantitative easing plan and deciding to take stock and gauge how Britain’s recession-hit economy is faring.
Since the May meeting, there have been signs that the worst of the UK economic downturn might have passed, with this week’s closely-watched purchasing managers’ index survey’s even suggesting growth may have resumed last month. However, while longer term expectations for most sectors of the UK economy have improved over the past few months, the BoE Inflation Report saw the MPC remain wary of talk of ‘green shoots’, emphasising that the economic outlook remained ‘unusually uncertain’. Despite revising down the Central Bank’s May growth outlook in light of a dismal first quarter GDP figure and an expectation of a delay in bank lending returning to normal, the MPC remain convinced of a 2010 recovery – even if ‘relatively slow and protracted’.
Looking beyond the June meeting, the success of the quantitative easing policy will ultimately be judged against the objective of lowering the yields on gilts and corporate bonds and ultimately helping to create conditions for a sustained recovery in confidence and economic activity.