By Simon Miller
The Bank of England monetary policy committee (MPC) voted unanimously to keep its £275bn quantative easing (QE) plans unchanged and keep the bank rate at 0.5%.
With the £75bn bond purchase program designed to aid the economy in its final month and inflation showing a fall last month, a delay in further QE was expected by economists.
However, the risks of a sharp contraction of output or persistently high inflation still remained medium term risks.
In addition, other factors such as whether “euro-area governments would be able to continue to refinance their debts and tackle their economic imbalances successfully; how strongly UK output growth would recover in the second half of 2012; and how far and fast CPI inflation would continue to fall after the first quarter” added to the decision that a further change in policy was “not warranted”.
According to the minutes of its January meeting, some MPC members were concerned that the “risk of undershooting the [inflation] target meant that a further expansion of asset purchases was likely to be required”.
The minutes added: “Some of those members also noted a downside risk to inflation arising from the possibility that the reduction in the economy’s supply potential following the recession had been less, and hence spare capacity greater, than assumed in the Inflation Report. But there was no compelling need to increase the scale of the programme of asset purchases before completing those already announced.”
This morning (25.01.2012), the Office for National Statistics revealed that UK GDP fell 0.2% in Q4 of 2011 – 0.1% more than expected while manufacturing output declined by 0.9%, its first fall since the tail-end of the last recession in 2009. The UK’s services sector flat-lined while construction shrank by 0.5%. As a whole, the economy grew by just 0.9pc in 2011.
Chancellor of the Exchequer George Osborne said Britain’s problems had been made worse by the eurozone crisis and added that Britain had substantial debts – the day after it was revealed that public debt now stood at just over £1trn.
He commented: “Britain had substantial debts and if we don't deal with those debts our economic problems will be substantially worse. And what we were reminded of this week is that the rest of the world is also facing real economic problems and countries that aren't dealing convincingly with their debt face worse economic prospects than we do.”
"So I think we've got the right plan, we've got to stick to it, but we've got to accept that Britain's economic problems, difficult as they are, built up as they have been over the past 10 years, have been made worse by the situation in the eurozone and by the crisis on our doorstep,” Osborne added.