Fundamental Analysis Forex, Fx News and Analysis
December 19, 2012 @ 2:14 pm

Bank of England sees slow growth in UK economy for 2013


The Bank of England Monetary Policy Committee (MPC) voted 8 to 1 not to expand its asset purchase programme, currently at 375 billion pounds, according to the minutes of the December 5 policy meeting. The MPC also voted unanimously to leave interest rates unchanged at a record low 0.5 percent.

Despite a sluggish economy, the MPC is reluctant to expand QE since this usually causes higher inflation. Unfortunately inflation remains quite high as shown by CPI data on Tuesday.

The BoE also said that inflation was likely to remain above its 2 percent target for the next year. Inflation held at 2.7 percent in November, its highest since May, despite expectations for a drop.

The minutes release is positive for sterling since expansion of asset buying tends to weaken the currency due to flooding the financial system with money.

The Bank of England offered dim outlook for the British economy in 2012. It forecasts that growth will remain stagnant. The minutes said there would probably be a contraction in the fourth quarter as economic output is slow.

“The deterioration in UK competitiveness over the past couple of years represented a potential headwind to the ability of UK exporters to benefit from a pick-up in global growth,” the minutes said.

Sterling has gained 0.1 percent against the dollar since the release of the BOE minutes, breaking above the key $1.63 level to a 2-month high before steadying in the New York trading session.

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