BoE policy on hold for now as UK economy worsens

Thu Aug 2, 2012 11:24am EDT
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By David Milliken

LONDON (Reuters) - The Bank of England decided it was too soon on Thursday to step up efforts to bolster Britain's recession-hit economy, although future action looks increasingly likely as growth shows little sign of rebounding after a dismal few months.

Britain's economy tipped into its second recession in four years at the end of 2011, and a multi-year austerity program to close the country's vast budget deficit is weighing both on consumer morale and the government's popularity.

The BoE restarted its asset purchase program, which aims to lower big companies' capital costs, last month, and Wednesday marked the start of a joint scheme with the finance ministry to reduce the cost of bank loans for home-buyers and businesses.

As a result, almost all economists polled by Reuters had expected the BoE to make no change on Thursday to its plan to buy 50 billion pounds of British government bonds, which will take total purchases to 375 billion pounds by early November.

Interest rates likewise stayed at a record low 0.5 percent.

But if economic data continues to disappoint in the way it has in recent weeks, the central bank may not have the luxury of waiting long before deciding on its next policy move.

"While the unchanged decision isn't a surprise there is a question mark as to whether current policy settings are appropriate," said David Tinsley, UK economist at BNP Paribas.

"It is probably not the sort of macroeconomic environment where policymakers want to be doing too little."   Continued...

The Bank of England is seen against a blue sky, London June 15, 2012. REUTERS/Paul Hackett