Bank of England to start 2013 on sidelines as economy scrapes

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Bank of England to start 2013 on sidelines as economy scrapes. (Reuters) Bank of England to start 2013 on sidelines as economy scrapes. (Reuters)
SummaryData on Wednesday showed Britain's goods trade deficit did not narrow as much as expected.

The Bank of England is likely to withhold fresh monetary stimulus at the start of the new year, with economic news still not bleak enough to trump worries about stubborn inflation. Last month the BoE voted 8-1 against extending its 375 billion pound ($601 billion) programme of bond purchases, and none of the 60 economists polled by Reuters over the past week expect a policy change after the Monetary Policy Committee concludes its monthly meeting on Thursday. Interest rates are also forecast to remain at their record-low 0.5 percent until at least July 2014.

"I don't think that we've seen anything to substantially change the MPC's view of the economy," said Barclays economist Chris Crowe. "We are not expecting any change in policy." Although December surveys of purchasing managers pointed to a 0.2 percent dip in British economic output in the fourth quarter, the latest official data on services, industrial production and construction has been less clear-cut.

Data on Wednesday showed Britain's goods trade deficit did not narrow as much as expected, raising the risk that the economy as a whole slowed in the last quarter.

"I think the best way to describe the economy is fragile but stable and it will remain this way for the next couple of quarters," said Rob Wood, economist at Berenberg Bank. BoE policymakers will probably wait for more data before reconsidering their views on another cash injection for the economy, analysts said.

There are also early signs that a BoE scheme to increase lending to consumers and businesses is working, easing a problem the central bank blames for holding back the economy and giving the MPC another reason not to announce more stimulus this week. A BoE survey found banks planned to increase credit supply in early 2013 after a record rise in loan availability late last year, which was helped by the Funding for Lending Scheme. The central bank said the programme, which provides cheap

funding to banks to encourage lending, is unlikely to materially affect lending volumes until early to mid-2013. The BoE will also keep a close eye on inflation.

MPC member Paul Fisher, after voting

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