“The Bank of England will reinvest the first gilts to mature since it started its asset-purchase program four years ago as it sustains stimulus for an economy in a “slow” recovery.
The Monetary Policy Committee led by Governor Mervyn King will buy more bonds with the 6.6 billion pounds ($10.4 billion) associated with a gilt maturing March 7, the BOE said in a statement today. The bank also held its target for quantitative easing at 375 billion pounds and said inflation may remain above its 2 percent target for the next two years.
The decision came as Bank of Canada Governor Mark Carney, who will succeed King in July, told lawmakers that the BOE’s current policy may be enough to help the economy achieve “escape velocity.” The gilt reinvestment shows officials want to avoid tightening policy as the U.K. confronts the risk of an unprecedented triple-dip recession. While inflation is likely to remain above target longer than previously forecast, the MPC said it would “look through” this temporary factor.
“The BOE put a toe gently in the water on guidance today, by describing that it intends to look through the boost to inflation from administered prices,” said Rob Wood, an economist at Berenberg Bank in London and a former Bank of England officials “That policy is sensible. A change in the way university tuition is paid for should not change the monetary policy stance.”
The BOE didn’t say what it will do with future gilt redemptions. It said the 6.6 billion pounds comprises the redemption payment on the gilt, as well as the cash flow resulting from the indemnity provided by the Treasury to cover any difference between the redemption payment and the original amount invested. It bought the securities at an average price of about 107.3 percent of face amount, its data show.
