Bank of England: Possible QE in New Year



Bank leaders leave QE unchanged for now

Bank leaders leave QE unchanged for now

The economic policymakers at the Bank of England had left open the possibility of an additional round of quantitative easing (QE) in February.

The QE measures involve printing and injecting cash into the faltering British economy in hopes of kickstarting growth. The poor growth in the third quarter of 2011 saw the bank add £75 billion to its already £200 billion QE programme.

The Bank of England buys assets in the form of gilts with this cash, meaning that it now has a large stake in long-term UK government bonds.

Bank meeting

The additional injection of cash will not take place until February, minutes from the Bank’s meeting last week said. They said that the time is not right for more QE because of uncertainty surrounding the eurozone crisis, and Britain’s position at the fringes of a treaty between the other 26 EU member states.

All nine members of the Bank’s Monetary Policy Committee (MPC) voted to maintain the current level of asset purchasing at £275 billion pounds.

They also voted to keep the base rate of interest for the UK unchanged, keeping it standing at a record low of 0.5%.

The MPC felt overall that the balance of risks and inflation had not changed dramatically over the past month.

However, some at the meeting brought up their readiness to press on with further stimulus to the economy. The minutes said simply that “some members” continued to note that further quantitative easing “might well become warranted in due course.” This falls in line with the majority of economists who expect the Bank of England to increase its asset purchases in February.

The current programme of gilt purchases will run its course by the end of January, leaving February open further action.

However, others noted the risk that inflation could fall more slowly than projected with any further QE measures.

Eurozone

The minutes from the Monetary Policy Committee meeting also showed great concern about the eurozone crisis, which has been driving up funding costs for banks and increasing market volatility.

The policymakers also maintained their prediction that Britain’s output will remain flat in the last quarter of 2011 and the first half of 2012.

This could mean a return to recession in the first half of the New Year, as this is defined by 2 consecutive quarters of contraction.

Economists and the MPC predict that after this short period of contraction, recovery will likely follow.

 

 

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