Bank of England keeps policy steady despite new remit

By David Milliken

LONDON (Reuters) - The Bank of England decided not to pump fresh money into its stagnant economy on Thursday, despite a new remit that gives it more leeway to disregard above-target inflation.

Further stimulus may still be on its way, however, after finance minister George Osborne tweaked the central bank's mandate two weeks ago.

He gave the bank stronger backing to ignore the series of one-off factors that have kept inflation above target for most of the time since the financial crisis.

The remit also paves the way for a broader review of the Bank of England's monetary policy when Mark Carney, who currently heads Canada's central bank, succeeds BoE Governor Mervyn King in July.

But for now there is no majority on the nine-member Monetary Policy Committee to add to the 375 billion pounds of government bonds it bought between March 2009 and October 2012, in line with economists' expectations.

Interest rates remained at a record-low 0.5 percent.

The British central bank's decision contrasts with that of the Bank of Japan, which has been under more overt political pressure to stimulate its economy. It shocked markets earlier on Thursday when it pledged to double its government bond holdings within two years.

Although King and two other policymakers backed restarting the BoE's asset-buying quantitative eaisng programme in February and March, there has been no sign of a softening in the opposition of the other six members, who are more concerned about inflation and sterling weakness.

Sterling strengthened slightly against the dollar and June gilt futures fell to a session low after the bank's decision, as economists had seen a slim chance of action this month.

But economists think more stimulus is likely later in 2013, either when the central bank publishes a quarterly update to its economic forecasts next month or after the Carney's arrival.

"Although the MPC left policy on hold again today, we suspect that the decision was still a close one. And while the chances of more asset purchases in May have perhaps declined, we still think Mark Carney's arrival in July could jump-start the committee into action," said Samuel Tombs of Capital Economics.

Britain's economy has stagnated over the past two years as it struggles to move away from government spending and financial services and towards exports after the financial crisis.

After a 0.3 percent contraction in the last three months of 2012, it risks tipping into its third recession in less than five years - though a March services survey released on Thursday suggested it may eke out modest 0.1 percent economic growth.

The Bank of England will not publish details of the policy discussion at the two-day MPC meeting until April 17.

(Additional reporting by Olesya Dmitracova and William Schomberg; editing by Jeremy Gaunt)