The Bank of England is not sure if its glass is half empty or full

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The Bank of England has kept interest rates at 0.5%
The Bank of England has kept interest rates at 0.5% Photo: Press Association

Are you a ‘glass half empty’ person or ‘glass half full’? The Bank of England isn’t sure.

It has decided to hold fire today and has neither increased the amount of quantitative easing nor cut interest rates, judging that now is not the time to stimulate the economy further.

Economists expected as much but until recently they had been predicting another injection of QE.

What changed their minds – and probably that of the members of the Bank’s policy-setting committee, the MPC – was the surprise jump in GDP as well as the continuing mystery of healthy employment statistics.

The Bank is also keen to allow its other stimulus measure, the Funding for Lending Scheme, time to take effect. A glass half full.

And yet a large chunk of that leap in GDP was temporary, industry surveys of manufacturing and the massive service sector have been gloomy suggesting there’s little momentum behind the recovery. That’ll be a glass half empty.

Governor of Bank of England Sir Mervyn King
Governor of the Bank of England Sir Mervyn King Credit: David Jones/PA Wire

So the Bank has decided to wait. The MPC members are worried that inflation may be about to rear up again as fuel and food prices rise so more stimulus would be unwise.

Furthermore, some members are questioning the efficacy of QE.

Charlie Bean, deputy governor, gave a speech last week in which he pondered whether the lower yields (effectively interest rates) which QE creates have much impact in the real economy when there is so much uncertainty and households will be paying down debt for years.

So that glass seems to be firmly at the halfway mark, it’s just not clear whether that’s good or bad.