The Bank of England has begun contemplating pumping money into the UK economy, which is stumbling. They will potentially use quantitative easing (QE), as most of the Monetary Policy Committee (MPC) have decided that an “immediate” stimulus plan was more likely to be helpful in September’s meeting.
Analysts expect that QE could begin in November. In addition, nine of the members voted to sustain the low interest rate of 0.5%. This news comes along with upsetting news about the economy. Tuesday saw the IMF downgrade its UK forecast for growth for both 2011 and 2012. Wednesday revealed that public sector borrowing throughout August was £15.9 billion, much higher than anticipated.
Even though the government has attempted to cut spending with its austerity cuts, the £52 billion in borrowing for the year is only 7% under what it was last year. Though none of the MPC save Adam Posen, the member who has consistently voted for QE, have actually approved a stimulus plan, members are considering it, with a statement saying, “For some members, a continuation of the condition seen over the past month would probably be sufficient to justify an expansion of the asset purchase program at a subsequent meeting.”
Waiting on the Third Quarter
Other analysts expect that the Bank is holding off until it sees next month’s estimates of the growth for the third quarter, with stimulus not taking place until November. Chief UK and European economist at HIS Global Insight, Howard Archer believes that the MPC will pass a £50 billion plan for stimulus in the fourth quarter, either in October or November.
The MPC had considered slowing retail growth, a drop in the housing market, lower manufacturing output, and fewer exports—all signs of a failing economy, in discussing the option of QE. Businesses appreciated the discussions, with chief economist at the British Chamber of Commerce, David Kern saying, “Although the voting at the September meeting was unchanged, the minutes suggest that the MPC is gearing itself up to increase the quantitative easing programme in the next few months. Business will see this as a welcome development.
The discussions also revealed that inflation was probably set to rise from 4.5% to 5%, 3% above the target of 2%. However, inflation is expected to come back down to its target in 2012, with the weak growth being experienced worldwide.