Instant View - Bank of England sits tight on policy as forecast

LONDON (Reuters) - The Bank of England decided against additional monetary stimulus for an economy that may yet dodge a new recession, voting on Thursday not to raise the target for its asset purchases.

Following are reactions to the decision:

ROB WOOD, BERENBERG BANK

"The current officials of the Old Lady of Threadneedle street kept the faith in their cheap credit scheme - the Funding for Lending Scheme - by keeping policy on hold today.

"In contrast, Mark Carney spent his morning in Westminster preaching a little more radical policy, effectively saying that the BoE's remit might needed altering slightly and indicating he favoured Fed-style guidance.

"The Bank put a toe gently in the water on guidance today, by describing that it intends to look through the boost to inflation from ?administered prices' which will stay in the inflation figures for some years. That policy is sensible. A change in the way university tuition is paid for should not change the monetary policy stance.

"The biggest decision from the Bank today was to reinvest the 6.6 billion pounds cash flow due on 7 March from redemptions of gilts it holds. The Bank did not comment on what it would do with future redemptions; the next are due on 27 September. And they become significant in 2014 and 2015, reaching close to ?60bn by the end of 2015.

"Carney's focus on the flexible in flexible inflation targeting seems to have been mirrored in the Bank's thinking. In the statement with today's decision, they gave clearer guidance than we have become accustomed to on the way in which they will deal with so called ?administered prices': tuition fees and green levies feeding through domestic energy bills.

"We continue to expect modest further easing after he takes over in July, which should boost the growth outlook. Fed-style guidance is the most likely change, in our view. We should probably also expect some confirmation from the Chancellor of the appropriate time the Bank should take to bring inflation back to target. That confirmation would be to say that the BoE's approach, covered in their guidance today, is appropriate."

JAMES KNIGHTLEY, ING

The Bank don't normally release a statement after leaving policy unchanged, but today they have. They have announced that they will be reinvesting the ?6.6bn of proceeds they will be receiving from the maturing March 2013 gilt, which is no surprise given they have maintained the size of the Asset Purchase Facility at ?375bn.

As for the accompanying text they state that "CPI inflation is likely to rise further in the near term and may remain above the 2% target for the next two years, in part reflecting a persistent inflationary impact both from administered and regulated prices and the recent decline in sterling."

However, the economy remains broadly flat and so the committee takes the view that it should continue to "look through" the temporary period of above target inflation.

Moreover, they stand ready to "provide additional monetary stimulus if warranted by the outlook for growth and inflation". This pretty dovish slant suggests more QE is possible in May is the recovery stalls and/or Eurozone/US risks come back to the fore.

Lee Hopley, Chief Economist at EEF, the manufacturers' organisation, said:

"The weak fourth quarter is unlikely to have swayed further members into more QE action and, if anything, some survey indicators have been a little better at the start of the year. It's still wait and see on how Funding for Lending, which is the main monetary game in town, will help businesses as well as households."

Katja Hall, CBI Chief Policy Director

"With business surveys showing some strengthening in activity, change was unlikely this month.

"We expect fairly subdued conditions to continue in the coming months, so unless the economy falters, monetary policy seems likely to stay on hold."

Source: http://news.yahoo.com/instant-view-bank-england-sits-tight-policy-forecast-122028853--business.html

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