MPC could delay quantitative easing

Further quantitative easing may be put on hold because of a sharp jump in growth in the economy, says Capital Economics.

Gross domestic product unexpectedly rose by 0.8% in Q3 and although this was down on Q2 growth of 1.2%, it was double the 0.4% expected by analysts.

The Office for National Statistics says allowing for the recovery in Q2 following the bad weather at the start of the year, underlying growth in Q3 is broadly similar to that in Q2.

In October’s Monetary Policy Committee meeting Adam Posen voted to increase quantitative easing by £50bn.

But Jonathan Loynes, chief european economist at Capital Economics, says with inflation still well above its target, the growth will probably be enough to deter the MPC from reviving its asset purchases at its next meeting this month.

However, he adds: “Nonetheless, we do not think the growth transforms the outlook of a weak recovery once the full effects of the fiscal squeeze kick in. The economy will need more support from monetary policy, probably early next year.”

Brian Johnson, insolvency practitioner at chartered accountant HW Fisher & Company, says better than expected Q3 GDP is a good sign.
But he adds: “The key to recovery remains getting banks to lend and nothing has changed on this front.”

Figures last week from the British Bankers’ Association show the number of mortgage approvals in September hit 72,723 – down from 73,930 in August and lower than the six-month average of 75,941. Gross mortgage lending of £;8bn in September was 10.8% lower than a year ago.