Bank of England's MPC likely to pull trigger on more QE
Wednesday, 08 February 2012 04:46
The Bank of England is poised to resume its programme of quantitative easing (QE) when the Monetary Policy Committee (MPC) concludes its monthly rate-setting meeting on Thursday morning.
Despite encouraging data from both the manufacturing and services purchasing managers’ index last week that suggests the UK economy could avoid a contraction in the first quarter of 2012.
In the final quarter of 2011 the GDP dropped by 0.2 per cent. If the economy contracts in this quarter, the UK will have technically entered recession.
The minutes from January’s meeting provided a broad hint that some members of the MPC will vote for more QE at the next meeting.
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 last injection of QE came in October when £75 billion of stimulus was unleashed. This was due to be spent by early February. It is likely that the MPC will discuss the effectiveness of this and review the areas that the money reached. This should allow any further QE to be targeted to the parts of the economy that most need it.
Robert Sinclair, Director of the Association of Mortgage Intermediaries, believes more QE is needed. He said: "With the Government committed to fiscal consolidation to protect sterling and our ability to finance our debt, more QE is the only way forward, as the more usual economic levers of tax cuts or public spending increases are not available.”
The question remains over the amount of QE the Bank of England will announce. Most analysts believe it will be £50 billion or £75 billion.
Howard Archer, Chief UK & European Economist for HIS Global said: “We expect a £50 billion dosage of QE, but a larger portion of £75 billion cannot be ruled out even though this looks less likely given the recent improved economic surveys.”
The Bank of England’s programme of QE has now reached £275 billion and the consensus is that there will be £50 billion more to come in May, which, if as expected £50 billion is also released in February, would take the total to £375 billion.
Interest rates are expected to remain at 0.50 per cent for the 35th consecutive month. There has been no mention of discussion in previous MPC minutes about trimming interest rates down to 0.25 per cent and most economists are not expecting to see a rise in the base rate until late 2013 at least.
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