Thursday, July 4, 2013

Sky News - Stronger Economy 'Puts Brakes On Carney'

The Bank of England's new governor is widely tipped to change course from his predecessor by not voting for more QE later.

Bank of England governor Mark Carney
Mark Carney started work as governor of the Bank of England on Monday
Evidence that the UK's economic recovery is gathering pace is widely expected to result in the Bank of England maintaining its support at current levels today.
The Monetary Policy Committee (MPC), which has been meeting for the first time under the leadership of new bank governor Mark Carney, announces its decisions on the base rate of interest and quantitative easing (QE) at midday.
While the base rate has not been changed since March 2009 - and will not be adjusted today - there has been a school of thought that Mr Carney may have favoured extending QE, also known as asset purchases, in the nearer term to help support growth efforts.
But recent economic data has suggested in unison that the speed of recovery has accelerated - with the British Chambers of Commerce the latest group to upgrade its growth expectations for the second quarter of the year and 2013 as a whole.
The closely-watched Purchasing Managers' Index surveys also pointed to growing output in manufacturing, construction and the crucial service sector - which recorded its fastest rise in activity in two years last month.
The slew of positive news is likely to have dispelled any immediate pressure for the bank to increase its QE programme beyond its £375bn level - allowing Mr Carney some breathing room.
Other members of the nine-strong MPC repeatedly thwarted his predecessor Sir Mervyn King's efforts to boost QE by £25bn during his final months, as five times he was defeated by a 6-3 majority.
Despite his aim to achieve "escape velocity" for the economy, it is thought that Mr Carney will not want to go out on a limb and face a defeat just four days into the job.
Sir Mervyn pointed out last week that while his Canadian successor may be more "persuasive", he only holds one vote on the MPC.
Some economists expect that Mr Carney will begin to take action to pull the UK out of the doldrums from August.
Vicky Redwood of Capital Economics said he was likely to introduce "forward guidance", which helps reassure markets that interest rates will remain low in the future while she predicted there was a 50% chance of QE also being resumed.

No comments:

Post a Comment