London - The Bank of England is edging towards launching a fresh round of asset buying to shield the economy from the euro zone debt crisis and keep the faltering recovery going, and Thursday's policy vote is set to be a cliffhanger.
A number of policymakers have flagged their readiness to join arch-dove Adam Posen and vote for more quantitative easing, and the outlook for the economy may be bleak enough to warrant an immediate start, a number of economists said.
"While it may be presentationally convenient to wait until the November inflation report to announce a move, we continue to think a majority on the (Monetary Policy Committee) will be worried enough by what they have already seen in the UK and global data, alongside ongoing pressure on bank funding conditions, to sanction an extension of QE this week," said J.P. Morgan's Malcolm Barr.
But others said the bank may want to wait one more month in order to base the decision on the fresh growth and inflation forecasts in the report. It may also want to see what other central banks do and what emerges at global policymaker meetings in the interim.
"The effectiveness of QE is likely to depend on what actions are taken by other central banks and the degree of progress in resolving the euro debt crisis," said Barclay's analyst Simon Hayes.
A Reuters economist poll showed last week that a majority were betting on a move by November, with the probability for a move in October at a relatively high 40%.
The economists predicted the Bank would spend another 50 billion pounds on top of the 200 billion it spent in the first round of quantitative easing from March 2009 to February 2010.
The Bank has kept its key interest rate at a record low of 0.5 percent for 2-1/2 years, and the momentum shifted over the summer from a bias to hike rates to further easing, despite the fact that inflation is set to hit 5 percent soon.
Equity markets have slumped as the U.S. economy slowed and the eurozone debt crisis escalated, unemployment started to rise in Britain and a slew of bad news from the economy stoked fears of a renewed recession.
With the government's hands tied by its pledge to erase a huge budget deficit, the onus to support growth is on the Bank.
Minutes of the bank's September meeting showed that those eight Monetary Policy Committee members who voted against more QE thought that the turmoil in August had strengthened the case for an "immediate" resumption of bond purchases.
But the policymakers have to digest not only the surprise rise in the latest manufacturing and services purchasing managers' indices, but also major revisions to official data that have changed the recent growth profile, showing a stronger boom before the financial crisis but a deeper recession in 2008/2009.
More importantly, gross domestic product growth for the first half of 2011 was revised down, showing that the economy overall stagnated since last September.