UPDATE 2-BoE keeps policy steady, avoids Fed path for now

* BoE holds rates at 0.5 pct, announces no new QE

* Sterling hits 9-month high vs dollar, gilts hit 3-day low

* High CPI, above-forecast growth keeps BoE off Fed path

(Adds more reaction, context)

By David Milliken

LONDON, Nov 4 (BestGrowthStock) – The Bank of England added no more
stimulus to the economy on Thursday after its November policy
meeting, seeming to want evidence of a sharper economic slowdown
before it considers the U.S. path of more quantitative easing.

The BoE’s decision contrasts with a move by the U.S. Federal
Reserve on Wednesday to buy $600 billion of bonds with new money
over the next eight months, after what it called
“disappointingly slow” progress towards its economic targets.

Economists had seen an outside chance the BoE might choose
to add to the 200 billion pounds ($322.7 billion) of assets
purchased between March 2009 and January this year, in a
pre-emptive move against the effects of hefty public spending
cuts due next year.

But above-target inflation and robust third quarter growth
appear to have stayed the Monetary Policy Committee’s hand for
now. This pushed sterling to a 9-month high against the dollar
(GBP=: ) and taking gilt futures to a 3-day low (FLGZ0: ).

“With inflation remaining well above target and higher VAT
from January next year likely to keep it there through 2011, the
BoE will be looking for clear signs that the recovery is
stalling before embarking on additional QE,” said ING economist
James Knightley.

The BoE’s decision to keep rates at their record low of 0.5
percent had been anticipated by all 63 analysts in a Reuters
poll last week. The only analyst who had forecast more QE when
polled revised his call on Wednesday after firmer-than-expected
data from purchasing managers in the services sector.

British inflation at 3.1 percent is 2 percentage points
higher than in the United States, and well above the BoE’s 2
percent target, while the UK unemployment rate is 2 percentage
points lower.

But there is a chance Britain’s central bank may eventually
decide more stimulus is needed to shore up the economy against
deep government spending cuts, and a significant number of
analysts reckon that could come in February.

“Despite the MPC’s no-change decision, I doubt that we will
have to wait much longer to see the launch of so-called ‘QE2’,”
said Roger Bootle, an economic advisor to accountants Deloitte.

“Further support is needed to see the economy through the
biggest government spending cuts in decades, with extra asset
purchases the only option left,” Bootle said, adding that
government spending had added an average of 1 percent a year to
British output over the past decade.

One Monetary Policy Committee member, Adam Posen, voted in
October for a 50 billion pounds expansion of the BoE’s asset
purchase programme and is likely to have done the same this
month, while Andrew Sentance will probably have reiterated his
call for higher rates.

Minutes to the Nov. 3-4 meeting published on Nov. 17 will
reveal whether either man was able to win broader support on the

“Of key interest will be whether any of the other seven MPC
members came off the monetary policy fence. We suspect not,”
said Howard Archer, chief UK economist at IHS Global Insight.
(Additional reporting by Fiona Shaikh, Christina Fincher and
Matt Falloon; editing by Mike Peacock and Toby Chopra)

UPDATE 2-BoE keeps policy steady, avoids Fed path for now