Quantitative easing won’t be extended
THE Bank of England (BoE) announced yesterday no further expansion of its quantitative easing scheme (QE), surprising markets which had widely expected the Monetary Policy Committee (MPC) to boost QE by another £25bn.
The Bank left rates on hold at 0.5 per cent for the fourth month running and said that it would review the scale of the programme again at its August meeting, alongside its latest inflation projections.
Analysts had expected the MPC to boost QE in light of recent disappointing data, tight credit conditions and rising unemployment.
David Kern, chief economist at the British Chambers of Commerce, said: “We disagree with the decision not to use the final £25bn allotted to the asset purchase programme. Quantitative easing is not yet fully effective and there is a strong case for raising the proportion of private sector assets that the MPC purchases.”
Many economists think that this month’s decision does not necessarily spell the end for QE and analysts expect the MPC to move in August, when it has access to a fresh set of inflation projections.
ING’s James Knightley said: “We suspect that the BoE may use the cover of next month’s inflation report to examine in more detail how well it is going and whether they should expand the programme up to the £150bn level or perhaps, as we suspect, look to expand it beyond that amount.”
George Buckley, chief UK economist at Deutsche Bank, noted that while the Bank said in the accompanying statement that it would take another month to complete the current QE programme, at current rates of purchasing it would only take a couple of weeks before QE would finish.
The central bank has so far announced QE worth £125bn, of which it has purchased £112bn. Chancellor Alistair Darling has authorised the purchase of up to £150bn worth of assets.