Test of QE plan - Conservative approach appropriate

Bank of England MPC agreed 9-0 to keep interest rates on hold and not extend the QE purchase program. Their view is that there is diminished downside risk in the economy. A larger purchase program is not necessary at this time. This will be an interesting test case for monetary policy in the new age of low interest rates. We will not know whether they have made the right decision for some time but now the fiscal deficit will have receive support form the monetary authority. The economy will have to grow to increase revenues and relieve deficits pressures.

The economy is doing better, but still not growing anything like what one would expect for a strong recovery. PMI manufacturing has bounce off the lows but and done better that survey expectations, but it is still below 50. PMI services is just above 51. Industrial production has started to turn although still -10 percent YOY. Consumer confidence is rising and higher than the end of last year. CPI is just below 2% so deflation concerns are diminished. Jobless claims are coming in lower then expected and average earning's are growing above 2% after hitting negative levels. Even retail sales have jumped to positive territory.

This all suggests that UK may be staggering to a modest recovery. A more conservative monetary policy is appropriate.