Chances of more UK asset buying rest on knife edge: Reuters poll

By Andy Bruce

LONDON (BestGrowthStock) – The chances the Bank of England will extend its quantitative easing program now rest on a knife-edge, according to a Reuters poll of economists who were evenly split on the subject.

The survey of around 60 analysts showed quarter-on-quarter growth languishing between 0.3 percent and 0.5 percent in each quarter through to mid-2012 — a far cry from the nine-year high of 1.2 percent seen in the second quarter.

With the UK government due to detail vast budget cuts next week, economists are increasingly looking to the Bank of England (BoE) to support the recovery as the state’s share of the economy declines.

Half of the 22 respondents who answered an extra question said the Bank would announce more quantitative easing (QE), a scheme designed to boost economies with newly created money from central bank purchases of assets like government bonds.

Similarly faced with mediocre growth prospects in the United States, Federal Reserve policymakers look almost certain to announce a second round of QE in November, while in Japan officials have already promised to pump more money into the economy.

Of those who said the BoE would follow suit — a position adopted by few economists until recently — many earmarked the fourth quarter of this year.

“The UK economy is close to a potential tipping point,” said John Hawksworth of PricewaterhouseCoopers.

“In our main scenario, the recent moderation of growth would continue but would not tip us back into negative growth. In this case, the MPC may narrowly avoid the need to resume QE and interest rates could start to edge up later next year.”

Economists gave a median 30 percent chance of a “double dip” return to recession, up from 22.5 percent, and double t

Economists gave a median 30 percent chance of a “double dip” return to recession, up from 22.5 percent, and double t he chances forecast for a double-dip in the United States.

Britain’s economy is expected to grow an average 1.6 percent this year and 1.8 percent next year, the poll showed, far below a pre-recession average of almost 3 percent per year.

“It already is apparent that the second quarter will be as good as it gets for the economy for some time to come,” said Howard Archer of IHS Global Insight.

Sharp house price falls reported in September raised concerns among economists about the property market, among the biggest wealth generators for Britons over the last 15 years.

THE 60 BILLION POUND QUESTION

Economists who forecast more QE from the BoE gave a median figure of around 60 billion pounds ($95 billion).

The BoE has already pumped about 200 million pounds into the economy, but despite the risk of a return to recession, stubbornly high inflation makes more QE controversial, with policymakers at the central bank split on the subject.

Economists said the BoE would wait to hike interest rates from a record low 0.5 percent until the fourth quarter of 2011 — the latest date forecast for a rate hike in a Reuters poll yet — but inflation expectations seem to be on the rise.

Forecasts for consumer price inflation were higher across the board compared with last month’s poll after it stayed steady at 3.1 percent in September, with inflation expected to stay above the BoE’s 2 percent target until early in 2012.

(Polling by Bangalore Polling Unit, Analysis by Jason George and Khushboo Mittal, Editing by Catherine Evans)

Chances of more UK asset buying rest on knife edge: Reuters poll