On Wednesday the Bank of England expressed that the state of the UK economy is not lifting quickly enough, making them set to pump in more money to support growth.
“Immediate” return to QE
The Bank’s September meeting showed that the pressures on the economy from a poorly performing month in August made “immediate” quantitative easing necessary.
A Reuters poll showed a 40% likelihood of QE happening as early as October. Howard Archer, of IHS Global Insight said, “A move as soon as October is entirely possible, but we suspect November is more likely.”
Experts say that a move for quantitative easing in October would put the Bank and the UK at the forefront of the global economy. The Federal Reserve has had talks of QE to boost the slow U.S. economy, but only small measures are expected to be taken.
The move by the Bank comes as the International Monetary Fund warned that Europe must “get its act together” lest it fall back into recession, after slashing its growth predictions for Britain and the rest of the global advanced economies.
The spotlight now turns on whether the Bank of England will continue its programme of purchasing assets, which resulted in spending 200 billion pounds in 2009-10 to drive down borrowing costs and encourage investment.
The decision to purchase assets and gilts must be weighed against inflation, which is already expected to rise beyond 5% this year. However, the minutes from the Bank of England show that the deteriorating economy from last month “significantly strengthened the case for immediate resumption of asset purchases.”
This move for more QE comes after the Bank’s quarterly bulletin released earlier this week has reported that the first round of QE give the UK economy a “significant boost.” Business Secretary Vince Cable also backs the resumption of asset purchases.
IHS Global Insight’s Howard Archer said, “Barring a marked improvement in the economy over the next few weeks (which is currently hard to see), we expect the MPC to approve a further 50 billion pounds in quantitative easing during the fourth quarter.”
Experts say the recent string of bad news in the European economy makes it a question is of when the Bank will move, and no longer if they will.