It’s all about waiting for Carney. It’s no great surprise that the Bank of England has left policy in fast cruise control, leaving it until Carney arrives before deciding whether to shift policy stimulus up a few more gears. There is no doubt about it, there is still a lot of work to do bringing the UK economy back to life. While there are some early signs of spring in the recovery’s step, the UK still needs a lot of intensive care. Right now, the Bank is working hard to over-compensate for the stimulus being removed by the government’s tough fiscal austerity. Sadly the economy is still at a relative standstill and needs a lot more injection of monetary stimulus to jumpstart it into stronger life.
Receding inflation pressures, low wages growth and weak economic demand means there is nothing to fear from adding extra monetary stimulus. There is plenty of slack in the economy for the BOE to do more without the risk of sparking overheating pressures. As UK rates are at rock bottom, it means that the door to more QE must remain wide open ahead. The latest weakness in retail sales underlines the risks to the economy. Consumer confidence is still in a parlous state and the Bank needs to ensure that economic demand is fully propped up and well before the debate about unwinding QE enters into the equation. We are a long way off from that stage.
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