Forex Flash: BoE should focus its efforts on supporting credit growth rather than extending QE – TD Securities

FXstreet.com (Barcelona) - The April meeting minutes came in largely as expected, with the MPC voting 6-3 in favor of unchanged asset purchases (and 9-0 in favor of unchanged rates), with Fisher, Miles, and Governor King continuing to prefer a £25bn extension of QE for the third meeting in a row, and not a single MPC member changing his vote from the prior month. TD Securities analysts found interesting the mention that the “Committee also saw merit in possible extensions to the FLS that would boost lending further”: “This is in line with what we have been saying for some time, that further stimulus from the BoE is more likely to come via FLS or another program that is targeted toward expanding credit, rather than more QE. With UK rates still quite low, that would likely be more effective at fixing what aids the UK economy right now, rather than using a blunt tool like QE”, wrote analyst Jacqui Douglas, adding that today’s minutes just reinforced the continuing data-dependent nature of the BoE’s QE decision.

TD Securities analysts expect next week’s Q1 GDP report to show a mild contraction, and put the UK economy in an unfortunate “triple-dip recession” scenario: “There is still good cause to believe that both UK and global growth will pick up into H2, and we think that the BoE will focus its efforts on supporting credit growth more specifically rather than continuing to extend QE, as higher levels of asset purchases make the cost/benefit analysis look a little bit more unfavorable”, Douglas concluded.