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No extra quantitative easing until November - predict the experts; BANK NEEDS TIME TO ASSESS 'FUNDING FOR LENDING'.


THE Bank of England is expected to hold back from unleashing additional emergency support for the economy tomorrow.

The Bank is expected to maintain interest rates at their record low of 0.5% and leave the targeted size of its quantitative easing (QE) programme at pounds 375bn as it works through pounds 50bn of asset purchases announced in July.

Most economists think the Bank's nine-strong monetary policy committee (MPC) will sanction further QE in November.

There has been little change in the economic outlook since the MPC's last meeting, although SSE's 9% hike in energy bills from next month and the impact of US drought on food prices have threatened the inflation outlook.

The Bank currently expects the rate of inflation - which increased to 2.6% in July - to fall to the Government's 2% target by the end of this year.

Governor Sir Mervyn King and his colleagues will also want more time to assess the impact of the UK's pounds 80bn "funding for lending" scheme, which was launched in the summer with the aim of unclogging the flow of credit.

Key economic indicators have painted a mixed picture this week. PMI manufacturing figures on Monday suggested the downturn in that sector was slowing, while construction PMI figures released yesterday showed that sector contracted in August.

Investec Securities economist Victoria Clarke said: "Over the past month the outlook hasn't shifted drastically, but inflation risks do appear to have nudged up. Even so we continue to see the committee backing more asset purchases in November when the current target of pounds 375bn is reached."

Howard Archer, chief European & UK economist at IHS Global Insight, said the better than expected PMI manufacturing figures for August reinforced belief that the Bank of England is highly likely to keep all aspects of monetary policy unchanged this month.

"With the funding for lending scheme still in its early stages and July's extension to quantitative easing due to run through to early November, it would likely need an extremely weak set of purchasing managers' surveys this week to prompt the MPC into further action at this stage," he said.

"Nevertheless, a further pounds 50bn of QE remains very much on the cards for the fourth quarter, taking the stock up to pounds 425bn. November seems the most likely time for this, given that July's pounds 50bn QE extension (to pounds 375bn) runs through to then and the MPC wants time to see what impact the "funding for lending" scheme has."


* The Bank of England is expected to maintain interest rates at their record low of 0.5% and leave the targeted size of its quantitative easing programme at pounds 375bn
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Title Annotation:Business
Publication:Western Mail (Cardiff, Wales)
Date:Sep 5, 2012
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