Bank of England to revive QE with £50bn injection into economy
Sunday, 05 February 2012 09:54
The Bank of England is expected to pull the trigger on a further £50 billion worth of quantitative easing (QE) when its Monetary Policy Committee (MPC) meets this week in a bid to kick-start the faltering economy.
The minutes of the MPC’s January meeting gave the broadest hint possible that there will be more money pumped into the economy sooner rather than later. An extract from the minutes said: “For some members, the risks of undershooting the target meant that a further expansion of asset purchases was likely to be required.”
The MPC were waiting for the effects of October’s £75 billion extension of QE to filter through to the economy so that an accurate assessment of its impact could be made and so that the aims and targets of a further programme of QE can be planned.
Economists are divided as to whether £50 or £75 billion will be unleashed. It may be that last week’s positive PMI data from the manufacturing and services sector might influence the amount. The dominant services sector grew to its highest level for ten months easing fears that the UK is heading for a double-dip recession.
The encouraging data led economists to revise upwards their predictions for UK economic growth this year. Goldman Sachs had expected the UK economy to shrink by 0.1 per cent in the first quarter of 2012, but now says it will grow by 0.2 per cent.
Most economists expect to see two sets of QE impetus, one in February and one in May. If the economy continues to show encouraging data the QE stimulus may be £50 billion each time rather than £75 billion.
Howard Archer, Chief UK & European Economist at HIS Global Insight said: “More Quantitative Easing by the Bank of England is still odds-on for Thursday, despite some recent encouraging survey evidence that suggests that the UK economy enjoyed a spike up in activity in January after GDP contracted 0.2% quarter-on-quarter in the fourth quarter of 2011.”
It is almost certain there will be no change in the base rate which has remained at 0.5 per cent since March 2009.
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