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Markets rein in Bank of England stimulus forecasts; British unemployment rate falls modestly
LONDON (AP) ' Markets reined in their expectations of a further economic stimulus from the Bank of England after minutes to its last rate-setting meeting showed a near-unanimous decision not to change the current program.
The minutes, published Wednesday, showed that only one member of the nine-member panel voted to increase the 325 billion pounds ($519 billion) program, one fewer than last time. The pound shot up in response from around $1.5940 to just under $1.60 as traders reduced their expectations of a further stimulus any time soon.
David Miles was the only member of the Monetary Policy Committee (MPC) to advocate another 25 billion pounds of quantitative easing ' whereby the Bank of England frees up money in the economy by creating new funds to buy up bonds and other assets from banks. The other eight members backed no change in policy.
All nine voted to keep the main interest rate at the record low of 0.5 percent.
Analysts generally believe Britain's economy grew modestly in the first quarter, following a downturn of 0.3 percent in the last three months of 2011.
A House of Commons committee report published Wednesday called on the Bank to make a detailed analysis of how pensioners have been affected by low interest rates, which the quantitative easing program is intended to promote. The committee said monetary policy has penalized savers and people depending on pensions.
Average weekly earnings are up 1.1 percent on an annual basis, the Office for National Statistics said, while consumer price inflation is now 3.5 percent. The minutes from the Bank's rate-setting meeting warned of further "upward pressure" on prices due to petrol and energy costs, hitting expectations that the Bank will be able to get inflation down to its target 2 percent.
"The Bank's policy options look unenviable," said Daniel Solomon, economist at the UK-based Centre for Economics and Business Research. "By keeping the base rate low and expanding the money supply the MPC is putting upward pressure on growth by making borrowing cheaper. At the same time, these policies put upward pressure on inflation, making it even more difficult for the Bank to reach its inflation target."
Britain's unemployment rate fell slightly in the December-February period, from 8.4 percent to 8.3 percent, the first quarterly drop in two years. It also marked the first time in two years that private sector hiring exceeded public sector layoffs.
The figures from the Office for National Statistics, however, portrayed a far from robust economy. The 53,000 jobs added in the December-February still left the total 57,000 below a year earlier, the statistics office said. Some 1.4 million people were working part-time because they could not find full-time work, the highest figure in 20 years, while the 1.14 unemployed women was the most since 1987.
"Unemployment is likely to tick back up again, as there are still many thousands of zombie companies in the economy," said Brian Johnson, an insolvency partner at HW Fisher & Company chartered accountants. "It's a brutal phrase but the economy needs to see a clear-out before it can begin moving forward with genuine momentum."
The Financial Times reported Wednesday that the Bank of England had approached Mark Carney, the governor of Canada's central bank, as a potential candidate to succeed Mervyn King when he steps down as governor of the Bank of England next year.
Bank of Canada spokesman Jeremy Harrison said the report was "not accurate," Canadian Press reported.