09.02.2012
By Simon Miller
The Bank of England (BoE) is to start another round of quantative easing its monetary policy committee announced today (09.02.2012).
With a slowing economy, the committee decided to increase its asset purchase programme by £50bn bringing the total so far to £325bn.
In addition, the committee also voted to maintain interest rates at 0.5%.
In a statement, the BoE said: "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."
It added that it expected a gradual strengthening of output growth later this year supported by a gentle recovery in household real incomes as inflation falls, together with the continued stimulus from monetary policy.
However, it added that the drag from tight credit conditions and the fiscal consolidation together presented a headwind.
"The correspondingly weak outlook for near-term output growth means that a significant margin of economic slack is likely to persist," the statement added.
The commitee noted that CPI inflation had fallen back from its September peak, declining to 4.2% in December and should continue to fall sharply in the near term, as the increase in VAT in January 2011 drops out of the twelve-month comparison.
The statement continued: "In the light of its most recent economic projections, 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 announced programme of asset purchases is expected to take three months to complete. The scale of the programme will be kept under review.
The QE announcement, although expected, caused dismay in the financial services.
Thomas Paterson, chief economist at gold broker, Gold Made Simple, commented: "In printing another £50bn, it's now clear that the Bank of England has dropped any pretence that it is trying to hit its government-mandated inflation target of 2%."
.
He added: "The Bank of England now has the dubious honour of being the central bank that has expanded its balance sheet more than any other central bank on the planet. In printing money in the way it is, the Bank of England is beyond madness."
Ranvir Singh, CEO of the market analysts RANsquawk, said: "Despite some last minute question marks raised by the relatively positive economic data of the past week, there was never any real doubt that Sir Mervyn King would pull the QE trigger once again."
"But QE's accuracy and efficacy are both being questioned. There is the risk that each successive volley will have less impact on Britain's listless economy," Singh added.
Other stories you may find of interest:
A very British Complex
Greater complexity leads to greater risks for banks according to Professor Simon Collinson, Warwick Business School and the Simplicity Partnership
Fencing off the risk?
The Independent Commission on banking has set the cat among the pigeons with the recommendation to ring-fence retail operations. Simon Miller looks at how this came about and what unintended consequences could arise
Impacting on investment
With emerging markets looking for investment, Simon Miller looks at the rise of impact investment and what risks entails in this socially aware vehicle
