— Bank is carrying out a review as to how to best communicate a reduction in monetary support
By Laurie Laird
LONDON (MaceNews) — The Bank of England could call a halt to the reinvestment of maturing bond proceeds as a first step to reducing the extraordinary monetary accommodation extended to support the UK economy through the pandemic, according to the country’s top central banker.
The Bank is “not discussing” the unwinding of quantitative easing, said Andrew Bailey, who nonetheless spoke at length about moderating extreme monetary support during testimony before the Lords Economic Affairs Committee on Wednesday. “We would hope” to have unwound some QE before the next crisis hits, he added, noting that the the BoE had not fully exited post-financial crisis programmes before Covid struck.
As suggested in minutes from the March Monetary Policy Committee meeting, Bailey confirmed that bank staff “are carrying out a review” of unwinding QE. However, any move must “be done on a predictable basis … and operated automatically,” he added.
Bailey comments come as UK growth recovers more quickly than forecast by the Bank of England and private economists. Employment grew by a 97,000 in the three months to April, pushing the jobless rate down to a lower-than-expected 4.8%,according to data released earlier on Tuesday.
Despite providing detail on the phasing out of QE for the first time, Bailey stressed that he does not share the view of outgoing BoE Chief Economist Andy Haldane, who has publicly warned of mounting inflation pressures. “Andy Haldane takes a very optimistic view” of UK growth, he said. “We have not yet seen evidence to support the view” that inflation will become problematic.
The BoE expects inflation to top its 2% target in 2021, largely due to the base effects caused by the plunge in crude oil prices last year, before returning to target toward year end. Those energy base effects depressed CPI by 50 basis points at the end of 2020, and will lift inflation by 75 basis points by the fourth quarter, added BoE Governor Dave Ramsden, appearing before the same Lords committee.
CPI rose to to 0.7% in March, the 20th-straight month below target. Analysts expect a further jump to an annual pace of 1.5% when May data are released on Wednesday.
| Tony |