BLBG: King Says BOE Stimulus Isn’t at Limit as Euro-Area Debt Crisis Poses Risk
ern of alternating positive and negative quarterly growth rates,” King said. “The biggest risk to the recovery stems from developments in the euro area, where there remain concerns about the indebtedness and competitiveness of some member countries.”
The pound was little changed against the dollar, trading at $1.5706 as of 12:19 p.m. in London. The yield on the two-year gilt was up 1 basis point at 0.406 percent.
‘Disorderly Outcome’
The Bank of England also said that failure to implement reforms in the euro area “could trigger a disorderly outcome and result in sharply lower growth” in the region.
While Greece has agreed to austerity measures needed to secure a second bailout package, euro-area finance ministers canceled a Brussels meeting slated for today, citing a lack of political assurances from Greek leaders to stick to the pledges. Ministers will instead hold a teleconference to prod Greece to do more to clinch the package.
The central bank sees U.K. inflation slowing to its 2 percent target by the end of this year and easing to 1.8 percent in two years, according to the Inflation Report. It sees annual gross-domestic-product growth at about 3 percent by the end of 2013. The trough in growth will be in the first half of 2012. The forecasts today were published in the form of fan charts and the data underlying the charts will be released next week.
“Inflation is judged somewhat more likely to be below the target than above it for a good part of the forecast period,” the Monetary Policy Committee said. At the end of three years, “those risks are judged to be broadly balanced.”
‘Loosening’ Bias
“The MPC does not see a strong case for more quantitative easing, although it retains a bias toward further loosening,” said Simon Hayes, an economist at Barclays Capital in London and a former Bank of England economist. “Although the growth outlook remains weak, there should be no presumption of further monetary stimulus.”
The Bank of England’s forecasts are based on the bond- purchase target staying at the 325 billion-pound level set on Feb. 9 and market expectations for interest rates. Those show the benchmark rate staying at current record low of 0.5 percent until the third quarter of 2014.
In November, the central bank forecast that inflation would slow to 1.7 percent at the end of this year and 1.3 percent at the end of 2013. It saw annual GDP growth at about 3.1 percent at end-2013.
“Moving to a world of steady growth, inflation close to our 2 percent target, and a more normal level of interest rates, will take time,” King said. “There is a limit to what monetary policy can achieve when real adjustments are required. But with falling inflation, and the prospect of an end to the squeeze in real incomes leading to a recovery in growth, we are moving in the right direction.”
‘Volatile’ Path
“The quarterly path of output is likely to be volatile through 2012, reflecting the impact of various one-off factors” such as the Queen’s Jubilee holiday in June, the bank said. Growth is “likely to remain weak in the near term, before gradually strengthening as households real incomes recover, supported by continued stimulus from monetary policy.”
Recent surveys indicate the economy may strengthen in the current quarter. U.K. manufacturing returned to growth in January, while expansion in the services sector accelerated. Stocks have risen this year, with the MSCI All-Country gauge up 9.3 percent. The FTSE 100 Index has added 6.2 percent.
To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net
To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net
