The survey also found that the Bank of England’s Monetary Policy Committee, which has been split 6-3 in favour of keeping its £375 billion bond-purchase programme on hold for the past two months, will wait until at least May to fire it up again.

Respondents to the poll said not enough had changed since the meeting earlier this month to prompt enough members to tip the balanced in favour of Mervyn King, Paul Fisher and David Miles, who want to expand the programme.

“I would be tempted to keep some powder dry until such time as the green shoots begin to peer through (in the economy) and use QE (quantitative easing) to reinforce the upswing, in much the same way as the U.S. has done recently,” said Peter Dixon, UK economist at Commerzbank.

The poll’s finding on housing, meanwhile, suggested only a modest amount of concern.

Many have criticised the housing plan, seeing it is a miniature version of the pre-crisis U.S. system where government agencies provided the cheap financing that played a key role in the biggest property boom and bust in U.S. history.

But 29 of 42 poll respondents said that the plan to shoulder the risk of billions of pounds in mortgages by allowing Britons to buy homes with much smaller down payments than lenders require will not reinflate the property market.

“The mortgage market has collapsed partly because of deleveraging and partly because households are not keen to make long-term commitments. This move may help to give the market a lift but I can’t see it generating a major bubble,” Dixon said.

Osborne has denied the policy will create a new boom, saying it is intended to help buyers who would normally qualify for a mortgage based on their earning power and credit risk but who can’t put up the deposit now being required by lenders.

Since the financial crisis, British mortgage lending has shrunk, as have property prices. The only exception has been London, where prices are rising strongly, pushed up by demand from foreign buyers.

Compared with the U.S. – where household finances are in much better shape than before the crisis and where house prices fell by more than a third and are climbing again – there hasn’t been any significant deleveraging in Britain.

As a share of disposable income, UK mortgage debt has dipped only slightly from around 140 percent to still above 130 percent. On top of that, the economy is not growing and wage inflation is not keeping up with the cost of living.

House prices only fell by about 20 percent at most in the UK after more than doubling over the decade before the financial crisis struck in 2007-08 and have been rising strongly in London for the past several years after a mild correction.

Fathom Consulting, along with several others, argue that Osborne’s new scheme will only serve to raise house prices and put the government on the line for any future decline in prices.

Under the scheme, people will be able to buy new-build homes worth up to 600,000 pounds with only a 5 percent deposit, covering the rest with an interest-free loan for five years, open to all, not just first-time buyers.

The government will also guarantee 130 billion pounds of mortgages from next year for three years, allowing banks to lend to buyers who don’t have big deposits to put down.

“This is effectively a policy to allow sub-prime lending,” said Fathom’s Philip Lachowycz.

* Reuters asked respondents the following question: “Do you think the British government’s plan to promote growth by allowing Britons to buy homes with small down payments will risk fuelling a new housing bubble? Yes/No”

(Reporting by Yati Himatsingka; Polling by Deepti Govind and Sarmista Sen; Writing by Ross Finley. Editing by Jeremy Gaunt.)

The survey also found that the Bank of England’s Monetary
Policy Committee, which has been split 6-3 in favour of keeping
its 375 billion bond-purchase programme on hold for the past two
months, will wait until at least May to fire it up again.

Respondents to the poll said not enough had changed since
the meeting earlier this month to prompt enough members to tip
the balanced in favour of Mervyn King, Paul Fisher and David
Miles, who want to expand the programme.

“I would be tempted to keep some powder dry until such time
as the green shoots begin to peer through (in the economy) and
use QE (quantitative easing) to reinforce the upswing, in much
the same way as the U.S. has done recently,” said Peter Dixon,
UK economist at Commerzbank.

The poll’s finding on housing, meanwhile, suggested only a
modest amount of concern.

Many have criticised the housing plan, seeing it is a
miniature version of the pre-crisis U.S. system where government
agencies provided the cheap financing that played a key role in
the biggest property boom and bust in U.S. history.

But 29 of 42 poll respondents said that the plan to shoulder
the risk of billions of pounds in mortgages by allowing Britons
to buy homes with much smaller down payments than lenders
require will not reinflate the property market.

“The mortgage market has collapsed partly because of
deleveraging and partly because households are not keen to make
long-term commitments. This move may help to give the market a
lift but I can’t see it generating a major bubble,” Dixon said.

Osborne has denied the policy will create a new boom, saying
it is intended to help buyers who would normally qualify for a
mortgage based on their earning power and credit risk but who
can’t put up the deposit now being required by lenders.

Since the financial crisis, British mortgage lending has
shrunk, as have property prices. The only exception has been
London, where prices are rising strongly, pushed up by demand
from foreign buyers.

Compared with the U.S. – where household finances are in
much better shape than before the crisis and where house prices
fell by more than a third and are climbing again – there hasn’t
been any significant deleveraging in Britain.

As a share of disposable income, UK mortgage debt has dipped
only slightly from around 140 percent to still above 130
percent. On top of that, the economy is not growing and wage
inflation is not keeping up with the cost of living.

House prices only fell by about 20 percent at most in the UK
after more than doubling over the decade before the financial
crisis struck in 2007-08 and have been rising strongly in London
for the past several years after a mild correction.

Fathom Consulting, along with several others, argue that
Osborne’s new scheme will only serve to raise house prices and
put the government on the line for any future decline in prices.

Under the scheme, people will be able to buy new-build homes
worth up to 600,000 pounds with only a 5 percent deposit,
covering the rest with an interest-free loan for five years,
open to all, not just first-time buyers.

The government will also guarantee 130 billion pounds of
mortgages from next year for three years, allowing banks to lend
to buyers who don’t have big deposits to put down.

“This is effectively a policy to allow sub-prime lending,”
said Fathom’s Philip Lachowycz.

* Reuters asked respondents the following question: “Do you
think the British government’s plan to promote growth by
allowing Britons to buy homes with small down payments will risk
fuelling a new housing bubble? Yes/No”

(Reporting by Yati Himatsingka; Polling by Deepti Govind and
Sarmista Sen; Writing by Ross Finley. Editing by Jeremy Gaunt.)

British inflation has been so sticky over the past decade that regular Bank of England pronouncements that it will come back down from wherever it is to the 2 percent target at the 2-year horizon has become something of a policy piñata in financial markets. And there is rampant speculation the government will soon modify that inflation target.

But it’s no joke to British consumers, whose wages have stagnated for years and with a plunging currency in their pocket that is down more than 8 percent so far this year. They’ve been much more frugal with their spending, and as a result the economy is on its back.

Alan Clarke, UK economist at Scotiabank, drew up this simple chart, which shows UK consumer price inflation in the communications and transport sector along with the equivalent measure across the English channel in France. The blue line is Britain, the red line is France.

You get the idea: these lines should be roughly similar. It’s only a narrow body of water between them. The two countries are so close that Britons living on the seaside in Kent, just 20 miles away from Calais, have been hit by roaming charges while their carrier thought they had skipped off to France.

Clarke writes:

In the UK, mobile phone companies are whacking up pay-monthly tariffs (even if people have signed up to a 1-2 year deal) because of rising costs – because they can.

In France, the new mobile phone provider Free has caused massive discounting. French communications prices are falling by around 15% y/y and UK prices are up by 3.5% y/y.

The fall in French communications prices was a major reason for yet another surprise fall in French inflation in February. The sector is subtracting around ½% from headline French inflation.

Clarke notes that British Prime Minister David Cameron, who said he was happy to roll out the red carpet to anyone wanting to avoid high income taxes in France, “should not only roll out the red carpet – he should pay the Eurostar tickets for the management of Free to come over here.”

A month after completely failing to foresee the sudden three
percent rally in the single currency coinciding with surging
stock markets around the globe, 64 strategists polled by Reuters
Feb 4-6 are forecasting calmer times.

They see the euro trading at $1.35 by end-February
and $1.28 in a year. A month ago the consensus for where the
euro would be trading now, last quoted around $1.356, was way
off, at $1.31. Even the most bullish forecast for $1.35
undershot the month-end close by nearly one percent.

It is expected to trade in the range of 1.30-1.39 this month
and 1.14-1.43 in 12 months.

However wrong last month’s prediction might have been,
analysts remained cautious about the euro even if the European
Central Bank’s balance sheet is shrinking when others are
expanding and its rates are expected to stay on hold. Such
stances can help support the value of a currency.

Now that most institutional investors around the globe have
piled into riskier trades at the start of the year with abandon,
the view is that’s overdone.

But it may be wishful thinking. CFTC data show currency
speculators are long the euro – bets that the currency will rise
- and barring a sudden rush to safe havens or a resurgence of
the euro zone crisis, the recent strength shows no signs of
abating.

The consensus last month was that the economy was much too
weak to warrant the euro surging any further. Not much has
changed, except for some evidence from business surveys that the
worst may be over for the 17-member currency bloc.

The latest leap higher for the euro – it hit a 14-month high
of $1.3711 on Friday – comes on top of a four percent rally in
the second half of last year.

Traders took European Central Bank President Mario Draghi at
his word when he said he would do “whatever it takes” to save
it. They still believe him.

But top forecasters polled by Reuters are not the only ones
concerned the euro has gone up too far, too fast.

Worried about how a strong currency may hurt exporters,
French President Francois Hollande on Tuesday implored the euro
zone as a whole to put together a policy to protect the currency
from “irrational movements.”

But the turnaround for the euro – which has come alongside a
long-awaited collapse in the safe-haven Japanese yen against the
dollar – is being driven at least in part by a fundamental
re-think of how the world economy is likely to perform.

“Recent evidence suggests that the global economy is at an
inflection point, with the acute stage of the financial crisis
now behind us,” wrote analysts at Credit Suisse.

“This said, we don’t expect a broad dollar-centric trend in
2013, consistent with a fairly static outlook for U.S. monetary
policy across the forecast horizon.”

They added that the dollar would likely lag the euro but
keep rising against the yen, broadly in line with the view from
the latest Reuters poll.

Credit Suisse are among the more bullish forecasters on the
euro, calling for it to trade at $1.40 in a year. But even that
is below the most aggressive forecast, $1.43 from ANZ, revised
up massively from $1.31 just one month ago.

The last time Reuters collected a 12-month euro forecast
that high was $1.45 from both HSBC and Goldman Sachs in May 2012
- a call for where it will be three months from now.

If the euro keeps rising this quickly, that forecast from
nine months ago may look to have been spot-on. But Goldman’s
latest forecast for end-April is a more modest $1.40, while HSBC
is predicting it to trade at $1.34.

(Polling by Sarmista Sen and Rahul Karunakar; Editing by Toby
Chopra)

The latest Reuters surveys of global asset managers confirm what we’ve all been watching over the past month: a mad rush out of safe havens and into stock markets. There seems to be little else to report out of financial markets.

That stampede, particularly into U.S. shares by U.S. money managers, clocked the single biggest rise in equity allocations since at least 2007, before the financial crisis began, according to the latest Reuters poll data. The rush into global stocks by investment firms all over the world was the biggest in at least three years.

Other reports are saying the same thing.

What is more puzzling, other than a desperate need for change, is why.

It’s clear that most people any way connected to debates in financial markets are tired of all the doom and gloom and don’t mind taking a more positive view. But is that enough?

The euro zone crisis has not just ebbed. It seems to have gone practically dormant. (Never mind that more than half of young Spaniards haven’t got a job. Or that we ought to be wary of calling an end to things that once seemed like they would never stop.)

The U.S. property market is showing some signs of life, with widespread price rises. (Never mind that the economy shrank in the final months of 2012 for the first time since it escaped from recession in 2009. Or that political gridlock is clearly damaging business and job prospects).

The latest global outlook is certainly a bit more optimistic than the same time last year.

But for now, the only thing that seems to really matter for investment managers is to have more stocks in their portfolio.

 - With additional reporting by Rahul Karunakar.

(Reuters) – Inflation targeting has served the Bank of England well and it should keep that as its main policy tool, despite the strategy’s role in fuelling a credit bubble that led to the financial crisis, a Reuters poll found.

The conclusion, based on a survey of economists taken this week, also comes despite inflation being persistently above the central bank’s 2.0 percent target for some years.

BoE Governor-designate Mark Carney, who currently runs the Bank of Canada, is seen as more likely to favour a flexible inflation target rather than abandoning it.

“There’s always going to be a great deal of pressure on the incoming governor to try and magic up a recovery,” said Philip Shaw, chief economist at Investec. “But changing targets is not the solution. What you need is a different toolkit.”

The poll results suggest that Carney, an outspoken and ambitious central banker, will not push to abandon the inflation target when he checks in to work on London’s Threadneedle Street in July. Britain’s government sets the target.

“Inflation targeting has served the UK well over the past 20 years but failed to address the various imbalances in the economy during the early half of the 2000s,” said Shaw.

What was missing was better oversight of the financial system. Like many, he favours better macroprudential policy to prevent another boom and bust.

Carney will have that and an expanded regulatory role in his remit.

“Beyond that, our view is that expectations on what an inflation target, or any other target can achieve, are often overambitious,” said Shaw.

Brian Hilliard, chief UK economist at Societe Generale, said that having another macro target would not have helped prevent the financial crisis.

A clear majority of forecasters, 38 of 51, said that the BoE should not drop inflation targeting, a view outgoing Governor Mervyn King fiercely defended in a recent speech calling instead for fine-tuning.

Only 10 economists said the bank should abandon its inflation target. The remaining three said it should change the measure of inflation it aims to keep under control.

But for most of the past decade inflation has been above target, and during every month since December 2009.

Those results suggest that any serious consideration of targeting economic growth, an argument Carney discussed at length in a speech last year but which he kept mum about in recent public appearances, is highly unlikely.

Britain’s economy has barely grown at all since 2010 and is one of the few among its industrialised peers that is still smaller than where it was before the crisis began in 2007. It shrank in the last few months of 2012.

A small majority, 19 of 37, said that if the BoE were to drop inflation targeting it should instead adopt a dual mandate like the Federal Reserve, which also targets unemployment.

The bank has been widely criticised for focusing on consumer prices while letting credit expand wildly early in the last decade, triggering an unprecedented boom in house prices.

Britain’s economy is still struggling to escape from the mess after that boom went bust. While printing hundreds of billions of pounds trying to reinflate the economy, the BoE has paid little heed to its inflation-fighting mandate.

“Low inflation was more the result of general global conditions than anything the BoE was able to achieve,” noted Commerzbank economist Peter Dixon.

“So whilst it served a useful purpose the target may not, in retrospect, been appropriate for the conditions prevailing at the time, in which asset price inflation was a bigger problem.”

Stephen Lewis at Monument Securities was more harsh.

“Inflation targeting failed to take account of the distortion of asset values and excessive credit creation in the years up to the crisis. It is a blinkered approach to policymaking.”

Meanwhile, the probability of further bond purchases by the bank, or quantitative easing, has fallen to a median 40 percent from 45 percent in a poll taken earlier this month. Bank Rate was seen on hold at a record low of 0.5 percent until at least the middle of next year.

“Additional QE would provide only marginal benefits for the real economy, while increasing longer-term risks of higher inflation, bubbles and financial distortions,” said David Kern, chief economist at the British Chambers of Commerce.

(Reuters) – Inflation targeting has served the Bank of England well and it should keep that as its main policy tool, despite the strategy’s role in fuelling a credit bubble that led to the financial crisis, a Reuters poll found.

The conclusion, based on a survey of economists taken this week, also comes despite inflation being persistently above the central bank’s 2.0 percent target for some years.

The Bank Governor-designate Mark Carney, who currently runs the Bank of Canada, is seen as more likely to favour a flexible inflation target rather than abandoning it.

“There’s always going to be a great deal of pressure on the incoming governor to try and magic up a recovery,” said Philip Shaw, chief economist at Investec. “But changing targets is not the solution. What you need is a different toolkit.”

The poll results suggest that Carney, an outspoken and ambitious central banker, will not push to abandon the inflation target when he checks in to work on London’s Threadneedle Street in July. Britain’s government sets the target.

“Inflation targeting has served the UK well over the past 20 years but failed to address the various imbalances in the economy during the early half of the 2000s,” said Shaw.

What was missing was better oversight of the financial system. Like many, he favours better macroprudential policy to prevent another boom and bust.

Carney will have that and an expanded regulatory role in his remit.

“Beyond that, our view is that expectations on what an inflation target, or any other target can achieve, are often overambitious,” said Shaw.

Brian Hilliard, chief UK economist at Societe Generale, said that having another macro target would not have helped prevent the financial crisis.

A clear majority of forecasters, 38 of 51, said that the Bank should not drop inflation targeting, a view outgoing Governor Mervyn King fiercely defended in a recent speech calling instead for fine-tuning.

Only 10 economists said the bank should abandon its inflation target. The remaining three said it should change the measure of inflation it aims to keep under control.

But for most of the past decade inflation has been above target, and during every month since December 2009.

Those results suggest that any serious consideration of targeting economic growth, an argument Carney discussed at length in a speech last year but which he kept mum about in recent public appearances, is highly unlikely.

Britain’s economy has barely grown at all since 2010 and is one of the few among its industrialised peers that is still smaller than where it was before the crisis began in 2007. It shrank in the last few months of 2012.

A small majority, 19 of 37, said that if the Bank were to drop inflation targeting it should instead adopt a dual mandate like the Federal Reserve, which also targets unemployment.

The bank has been widely criticised for focusing on consumer prices while letting credit expand wildly early in the last decade, triggering an unprecedented boom in house prices.

Britain’s economy is still struggling to escape from the mess after that boom went bust. While printing hundreds of billions of pounds trying to reinflate the economy, the Bank has paid little heed to its inflation-fighting mandate.

“Low inflation was more the result of general global conditions than anything the Bank was able to achieve,” noted Commerzbank economist Peter Dixon.

“So whilst it served a useful purpose the target may not, in retrospect, been appropriate for the conditions prevailing at the time, in which asset price inflation was a bigger problem.”

Stephen Lewis at Monument Securities was more harsh.

“Inflation targeting failed to take account of the distortion of asset values and excessive credit creation in the years up to the crisis. It is a blinkered approach to policymaking.”

Meanwhile, the probability of further bond purchases by the bank, or quantitative easing, has fallen to a median 40 percent from 45 percent in a poll taken earlier this month. Bank Rate was seen on hold at a record low of 0.5 percent until at least the middle of next year.

“Additional QE would provide only marginal benefits for the real economy, while increasing longer-term risks of higher inflation, bubbles and financial distortions,” said David Kern, chief economist at the British Chambers of Commerce.

(Polling by Snehasish Das and Rahul Karunakar, Editing by Jeremy Gaunt, John Stonestreet)

Rapidly-rising consumer prices, which are crimping spending power for Britons because they are going up faster than wages, also mean that the Bank of England has probably shelved its money-printing campaign at 375 billion pounds.

The latest Reuters consensus view, published a day after the central bank painted one of the most pessimistic economic forecasts since it was granted monetary independence in 1997, is little changed from one month ago.

Just 0.1 percent growth expected during September-December and 0.2 percent in the first three months of next year is the most downbeat outlook since Reuters began polling on these periods more than a year ago.

The central bank’s outlook and the Reuters poll solidify the widespread perception among economists that the spurt of growth in the third quarter driven by the London 2012 Olympic Games was fleeting.

But after holding its quantitative easing government bond purchases programme steady this month, there is only a median 45 percent chance the Bank of England buys any more, the poll suggested.

“Never say never, but if there was no point in doing it this month why do it again in the next three months?” asked Alan Clarke, economist and bond strategist at Scotiabank, who puts less than a one-in-three chance of another round of QE.

Its decision to halt comes mainly because of the decision taken by the UK government, and agreed by the BoE, to transfer back to the government the interest the central bank had received on the bonds it has already bought.

That amount, 37 billion pounds, is a significant stimulus, roughly the size of annual UK public sector net borrowing before the financial crisis began.

As such it makes a major improvement to the UK government’s fiscal position ahead of the autumn Budget statement.

Before this transfer of cash over to the government was announced, economists had been expecting another 50 billion worth of government bond purchases by the BoE.

INFLATION ON THE RISE

The latest Reuters poll also showed the highest consensus forecasts for inflation for the coming four quarters since polling began for these periods, with 2.4 percent for Q4, followed by 2.3, 2.4, and 2.3 percent.

The BoE, which targets inflation at 2.0 percent, is clearly feeling uncomfortable with the spot it finds itself in and made that public at a press conference on Wednesday.

“We face the rather unappealing combination of a subdued recovery with inflation remaining above target for a while,” BoE Governor Mervyn King told journalists.

That is another reason for the BoE to stop buying bonds, which tends to be inflationary and in theory at least, ought to erode the value of the currency as it lifts the money supply.

A debate is now raging in Britain over how badly the government’s fiscal austerity is damaging the economy, albeit less severely than in Greece or Spain, which are suffering swingeing tax rises, spending cuts and mass unemployment.

In the meantime, demand for UK exports from the euro zone, Britain’s main trading partner, is also withering, in part because of austerity there.

That leaves little reason to hope for an export-driven rebound, no matter how weak the pound may be.

Indeed, Britain’s economy is expected to grow at half the speed of another of its major trading partners, the United States.

Rapidly-rising consumer prices, which are crimping spending power for Britons because they are going up faster than wages, also mean that the Bank of England has probably shelved its money-printing campaign at 375 billion pounds.

The latest Reuters consensus view, published a day after the central bank painted one of the most pessimistic economic forecasts since it was granted monetary independence in 1997, is little changed from one month ago.

Just 0.1 percent growth expected during September-December and 0.2 percent in the first three months of next year is the most downbeat outlook since Reuters began polling on these periods more than a year ago.

The central bank’s outlook and the Reuters poll solidify the widespread perception among economists that the spurt of growth in the third quarter driven by the London 2012 Olympic Games was fleeting.

But after holding its quantitative easing government bond purchases programme steady this month, there is only a median 45 percent chance the Bank buys any more, the poll suggested.

“Never say never, but if there was no point in doing it this month why do it again in the next three months?” asked Alan Clarke, economist and bond strategist at Scotiabank, who puts less than a one-in-three chance of another round of QE.

Its decision to halt comes mainly because of the decision taken by the UK government, and agreed by the Bank, to transfer back to the government the interest the central bank had received on the bonds it has already bought.

That amount, 37 billion pounds, is a significant stimulus, roughly the size of annual UK public sector net borrowing before the financial crisis began.

As such it makes a major improvement to the UK government’s fiscal position ahead of the autumn Budget statement.

Before this transfer of cash over to the government was announced, economists had been expecting another 50 billion worth of government bond purchases by the Bank.

INFLATION ON THE RISE

The latest Reuters poll also showed the highest consensus forecasts for inflation for the coming four quarters since polling began for these periods, with 2.4 percent for Q4, followed by 2.3, 2.4, and 2.3 percent.

The Bank, which targets inflation at 2.0 percent, is clearly feeling uncomfortable with the spot it finds itself in and made that public at a press conference on Wednesday.

“We face the rather unappealing combination of a subdued recovery with inflation remaining above target for a while,” Bank Governor Mervyn King told journalists.

That is another reason for the Bank to stop buying bonds, which tends to be inflationary and in theory at least, ought to erode the value of the currency as it lifts the money supply.

A debate is now raging in Britain over how badly the government’s fiscal austerity is damaging the economy, albeit less severely than in Greece or Spain, which are suffering swingeing tax rises, spending cuts and mass unemployment.

In the meantime, demand for UK exports from the euro zone, Britain’s main trading partner, is also withering, in part because of austerity there.

That leaves little reason to hope for an export-driven rebound, no matter how weak the pound may be.

Indeed, Britain’s economy is expected to grow at half the speed of another of its major trading partners, the United States.

(Polling and analysis by Ruby Cherian and Namrata Anchan. Editing by Jeremy Gaunt.)

Rapidly-rising consumer prices, which are crimping spending power for Britons because they are going up faster than wages, also mean that the Bank of England has probably shelved its money-printing campaign at 375 billion pounds ($594 billion).

The latest Reuters consensus view, published a day after the central bank painted one of the most pessimistic economic forecasts since it was granted monetary independence in 1997, is little changed from one month ago.

Just 0.1 percent growth expected during September-December and 0.2 percent in the first three months of next year is the most downbeat outlook since Reuters began polling on these periods more than a year ago.

The central bank’s outlook and the Reuters poll solidify the widespread perception among economists that the spurt of growth in the third quarter driven by the London 2012 Olympic Games was fleeting.

But after holding its quantitative easing government bond purchases programme steady this month, there is only a median 45 percent chance the Bank of England buys any more, the poll suggested.

“Never say never, but if there was no point in doing it this month why do it again in the next three months?” asked Alan Clarke, economist and bond strategist at Scotiabank, who puts less than a one-in-three chance of another round of QE.

Its decision to halt comes mainly because of the decision taken by the UK government, and agreed by the BoE, to transfer back to the government the interest the central bank had received on the bonds it has already bought.

That amount, 37 billion pounds, is a significant stimulus, roughly the size of annual UK public sector net borrowing before the financial crisis began.

As such it makes a major improvement to the UK government’s fiscal position ahead of the autumn Budget statement.

Before this transfer of cash over to the government was announced, economists had been expecting another 50 billion worth of government bond purchases by the BoE.

INFLATION ON THE RISE

The latest Reuters poll also showed the highest consensus forecasts for inflation for the coming four quarters since polling began for these periods, with 2.4 percent for Q4, followed by 2.3, 2.4, and 2.3 percent.

The BoE, which targets inflation at 2.0 percent, is clearly feeling uncomfortable with the spot it finds itself in and made that public at a press conference on Wednesday.

“We face the rather unappealing combination of a subdued recovery with inflation remaining above target for a while,” BoE Governor Mervyn King told journalists.

That is another reason for the BoE to stop buying bonds, which tends to be inflationary and in theory at least, ought to erode the value of the currency as it lifts the money supply.

A debate is now raging in Britain over how badly the government’s fiscal austerity is damaging the economy, albeit less severely than in Greece or Spain, which are suffering swinging tax rises, spending cuts and mass unemployment.

In the meantime, demand for UK exports from the euro zone, Britain’s main trading partner, is also withering, in part because of austerity there. <ECILT/EU>

That leaves little reason to hope for an export-driven rebound, no matter how weak the pound may be.

Indeed, Britain’s economy is expected to grow at half the speed of another of its major trading partners, the United States. <ECILT/US>

($1 = 0.6310 British pounds)

(Polling and analysis by Ruby Cherian and Namrata Anchan. Editing by Jeremy Gaunt.)