UK Economy : Post London Olympics 2012

Instant View: BoE sees flat economy in near-term – minutes

LONDON |         Wed Dec 19, 2012 9:50am GMT

LONDON (Reuters) – Britain’s economy is likely to remain broadly flat in the near term but inflation would probably exceed 2 percent in the next year or so, minutes to the Bank of England’s December 5-6 meeting showed on Wednesday.

Following are analysts’ reactions to the minutes.

ROB WOOD, BERENBERG BANK

“I don’t think anything stands out. It’s a picture of a committee on hold for the time being. There seems to be no big change of views- David Miles voting for more QE, the others holding off.

“The big news is that inflation is above target and likely to stay there. Weak productivity is spooking the committee.

“But these minutes really are more of the same. You have eight members who really don’t think much has changed on the month, weak productivity is stopping them from doing more.

“Our view is that as we head into next year, weak growth is likely going to force a change, (at the moment) they are putting a lot of faith in the Funding for Lending Scheme.”

ROSS WALKER, RBS

“There was a little line near the front talking about the substantial risks to the inflation forecasts – they were all on the upside.

“To me it feels like it’s reinforcing a neutral policy stance. Sluggish growth, overshooting inflation makes it difficult to do anything with policy.

“It’s very hard to see anything before February and more likely before May.

“It’s not as if they’re not doing anything – there is that outstanding stock of gilt purchases and the FLS anecdotally seems to be working on some front.

“It’s going to take time. Barring any big shocks, it feels like we’re probably not going to get, for example, further QE in the first half of next year. But I don’t think you can rule these things out categorically. We’ve seen external shocks blowing everything off course.”

JAMES KNIGHTLEY, ING

“With the Funding for Lending Scheme showing tentative signs of supporting lending there seems to be little appetite for more stimulus at the moment.

“However, should the United States topple off the fiscal cliff and if the Euro zone situation deteriorates the Bank of England will probably have to act again.”

NEVILLE HILL, CREDIT SUISSE

“It doesn’t look as if there is any imminent change in balance or mood on the committee, so very much on hold.

“Perhaps the only interesting point is that they seem unhappy with the level of currency at the moment, saying that the lack of competitiveness in the last couple of years was a headwind to UK exporters.

“The main thing for next year is whether there is a change in tone from the new governor.”

BRIAN HILLIARD, SOCIETE GENERALE

“Nothing very exciting this time – but we didn’t expect it to be. Miles is looking for more stimulus – so he has been consistent.

“Much of the weakness in exports come from services. They are becoming a little more downbeat that net exports will boost growth.

“There is a little bit of a question mark over the strength of consumption – the Q3 bounce in GDP from the Olympics was less than they would have expected.”

PHILIP SHAW, INVESTEC

“Very much as expected. The discussions suggest that developments over the month hadn’t really changed the balance of the monetary policy debate and it will probably take another two months of data potentially to shift arguments one way or the other.

“We take the views that last week’s construction data reduced the risk of a contraction of GDP over Q4 and so it’s possible that the committee’s commentary over the economy from early next year becomes a little less downbeat.

“Finally, our central view is that the MPC will refrain from sanctioning any further QE over 2012 but clearly that’s subject to economic developments.”

MELANIE BOWLER, MOODY’S ANALYTICS

“Weakening price pressures will allow monetary policy to remain expansionary.

“The use of further unconventional monetary policy tools is also possible, especially should the economy fail to grow as anticipated, or if it is subject to a shock.

“While questions have arisen over the effectiveness of the bank’s quantitative easing policy, further asset purchases have not been ruled out.

“And although the bank’s funding for lending scheme has yet to translate into stronger lending to the private sector, the bank’s latest quarterly bulletin…notes that there are tentative signs that the policy, which is set to run until the end of 2013, is starting to have (an) effect.”

(Reporting by London newsroom)