BANK of England policymakers are likely to kick off 2013 in the same way they finished 2012, in “wait and see” mode, despite concerns over the strength of the economy.
The majority of economists expect the central bank’s monetary policy committee (MPC) to keep borrowing costs and quantitative easing on hold at the conclusion of this week’s rate-setting meeting.
The no-change forecast comes despite a worringly weak snapshot of Britain’s services sector, which accounts for more than two-thirds of the economy. Friday’s purchasing managers’ index revealed that output shrunk last month for the first time in two years.
Howard Archer, chief UK economist at forecasting group IHS Global Insight, said a change in interest rates was “off the radar”, while the case for further QE was not compelling given recent increased inflation risks and signs that the £80 billion Funding for Lending Scheme may be starting to have a positive impact.
He said: “The minutes of the December MPC meeting point to the committee being firmly in wait and see mode going into 2013. And the indications are that they may well remain in wait and see mode for some time to come, barring a marked downturn in economic activity.”
Citi economist Michael Saunders added: “We still expect the MPC to expand the QE target to £450bn [from £375bn currently] in the year ahead.”