The Bank of England’s Monetary Policy Committee decided not to ramp up its quantitative easing initiative on Thursday, but TD Bank economists say that doesn’t mean it has given up on the measure.

The BoE left the rate paid on commercial bank reserves unchanged at 0.5% and it voted to continue with its £125-billion asset purchase program (aka quantitative easing). It said that it expects it will take another month to complete those purchases, so far it has made £112-billion worth.

TD Economics says that the rate decision was expected, but that market analysts were interested to hear what the Bank would do with its QE program. With many central banks having cut their rates as low as they can go, such unconventional policy options are being tried out in a number of countries, but they are basically untested.

“Some have speculated [the decision not to expand the program] is a sign the BoE has soured on quantitative easing, especially since the BoE had been pre-approved by HM Treasury to increase purchases up to £150 billion if the central bank thought it was appropriate,” TD notes.

However, TD says that the implications of the BoE’s decision are not so clear-cut. It points out that the minutes from the June policy meeting do not necessarily support the view that the BoE is disappointed with the plan’s effects. “It seems much more likely that the BoE is truly taking this extra month to examine the effectiveness of the asset purchase program,” it concludes.

TD points out that in its May Inflation Report, the BoE’s forecasts only saw balanced risks of inflation getting back to target in the medium term if the full £125 billion in purchases were completed and the bank rate was held constant at 0.50% through that entire period (to mid-2011).

“Extending the policy-relevant horizon out one more quarter and allowing for even a marginal improvement in the outlook suggests the August forecasts could show inflation at least at target in mid-2011, implying some tightening in interest rates starting in mid-2010.”

“The question will be whether the BoE sees some role in additional QE getting inflation closer to the target sooner. To help answer this question, we will be looking to the minutes of today’s meeting, to be released July 22,” TD says.