Bank resumes QE with extra £50bn boost
Thursday, 09 February 2012 12:51
The Bank of England’s Monetary Policy Committee (MPC) has announced that it will release £50 billion worth of new money into the economy as it resumes its programme of quantitative easing (QE).
This takes the overall level of QE up to £325 billion. The policy decision was widely predicted and the minutes from January's last meeting indicated that some members of the MPC were actively considering it
A statement from the Bank of England explaining the economic factors that influenced the decision to print more money said: “In the United Kingdom, the underlying pace of recovery slowed during 2011, with activity falling slightly during the final quarter.
“Some recent business surveys have painted a more positive picture and asset prices have risen. But the pace of expansion in the United Kingdom’s main export markets has also slowed and concerns remain about the indebtedness and competitiveness of some euro-area countries.”
Adrian Coles, Director-General of the Building Societies Association, said: "With the economy in negative growth territory, an expansion in the quantitative easing programme is a predictable response. The additional asset purchases of £50 billion announced today will inject money into the economy, but it remains to be seen whether this will stimulate demand, economic growth, and market confidence."
The statement from the Bank of England concluded: "The Committee judged that the weak near-term growth outlook and associated downward pressure from economic slack meant that, without further monetary stimulus, it was more likely than not that inflation would undershoot the 2% target in the medium term. The Committee therefore voted to increase the size of its programme of asset purchases, financed by the issuance of central bank reserves, by £50 billion to a total of £325 billion."
There has been no change in interest rates as base rate remains at 0.50 per cent for a 35th consecutive month.
The MPC judged that the economy needed further stimulus despite encouraging data from last weeks’ manufacturing and services sector purchasing managers’ index that indicate the economy is performing better than expected in the first weeks of 2012.
The Bank of England issued a further £75 billion of quantitative easing in October 2010 and said that it would take until early February for that money to fully filter through to the economy and to assess its impact.
Howard Archer, Chief UK & European Economist at HIS Global said that further QE was no surprise given the state of the UK economy: “Despite the purchasing managers’ surveys for the services, manufacturing and construction sectors pointing to markedly improved overall activity in January after GDP contracted 0.2% quarter-on-quarter in the fourth quarter of 2011, the economy still faces very challenging conditions and is far from out of the economic woods.”
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