By Laurie Laird
LONDON (MaceNews) – The Bank of England will reduce its pace of asset purchases as the UK’s aggressive vaccine campaign has allowed the gradual reopening of the economy.
“As envisaged since the announcement of [the emergency quantitative easing programme in November 2020] and consistent with developments in financial markets since then, the pace of these continuing purchases could now be slowed somewhat,” according to minutes of the Bank’s latest Monetary Policy Committee meeting that ended on Wednesday.
However, the programme will extend through end of 2021, as previously signalled, and the slowdown in asset purchases “does not signal a change in monetary policy stance,” said Governor Andrew Bailey, addressing reporters following the release of the minutes.
Bailey took pains to stress that deceleration of bond buying “is not a tapering decision,” as the total stock of the programme remains at £875 billion. “There’s no message to be taken from today’s announcement,” he added.
The tweak to monetary policy came as the Bank of England sharply upgraded its growth forecasts. GDP is likely to expand by 7.25% this year, up from the 5.0% pace forecast in February. Output declined by 1.5% over the opening months of 2021, according to the Bank’s revised central forecast, an upgrade of approximately three percentage points.
‘There is very strong and good news in the state of the economy at the moment,” said Bailey. First quarter gross domestic product data are due for release on Wednesday, 12 May.
BoE rate-setters see little risk of sustained inflationary pressures. Consumer prices could exceed the Bank’s 2.0% annual target later this year, but such an increase “should have few direct implications for inflation over the medium term,” according to the MPC minutes.
The MPC reduced its unemployment peak unemployment to “just under 5.5% in Q3,” well below the 7.75% forecast early in the crisis. Unemployment stood at 4.9% in the three months ending in February, but the MPC repeated its belief that the headline number underestimates the true level of UK joblessness.
Departing Chief Economist Andy Haldane, who has recently warned of the risk of inflationary pressures, dissented from the decision to maintain the QE stock at £875 billion, voting to reduce the envelope by £50 billion.
The MPC did not repeat its desire explore the best ways of communicating an eventual end to monetary accommodation, as contained in minutes of the March meeting, but did say that the conditions for ‘any future tightening … were not met.”
Bailey suggested that conversations about the sequencing of reducing the stock of QE and lifting interest rates are ongoing. “We haven’t yet undertaken and completed the review’ on the balance between ending the various strands of stimulus, he said.