Bank announces £50 billion quantitative easing package

Bank announces £50bn quantitative easing package

The Bank of England will inject £50 billion in additional quantitative easing (QE) into the economy to continue to shore it up against the risk of another recession.

The announcement came as the Bank's Monetary Policy Committee kept the UK base rate on hold at a record-low 0.5 per cent.

The latest cash injection brings the total amount of QE stimulus to £325 billion since the programme was initiated in 2009.

The process involves the purchase of mainly government-issued bonds from banks and aims to improve lending.

Although the latest round of QE was widely anticipated, and many experts had forecast the figure to be £75 billion.

In a positive move, the Bank is thought to have reduced the amount on the basis of encouraging signs that the UK is moving further away from a double-dip recession.

Even so, concerns about the eurozone and weak consumer spending remain.

Jeremy Batstone-Carr, chief economist at Charles Stanley, believes that more QE is on the cards. 'The forthcoming quarterly inflation report seems likely to confirm the need for additional monetary policy stimulus, despite the better tone to UK activity data in early 2012 to date,' he remarked.

Batstone-Carr believes that the medium-term inflation forecast may be edged higher in the wake of stronger data, but still forecast to fall below target. 

'Since the previous meeting, annualised Consumer Prices Index (CPI) inflation has fallen to growth of 4.2 per cent, commodity prices have slipped and energy utility companies have confirmed price cuts. Sterling has appreciated on a trade weighted basis, imparting modest potential downside pressure on the medium-term inflation target,' he said.

Thomas Paterson, chief economist at broker Gold Made Simple, also predicts a repeat performance. 'We expect the Bank to print at least an additional £100-£150bn before the year is out,' he forecast, describing the latest round of QE as 'beyond madness'.

Ranvir Singh, chief executive of market analyst RANsquawk, also questioned the use of QE. 'The Bank of England's primary growth stimulating weapon clearly has impressive firepower. December's drop in inflation persuaded the governor to remove the safety catch and take aim for a fourth time.'

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. With inflation predicted to continue falling in 2012, the risk of inflationary side effects from further QE will reduce,' Singh said, warning: 'Forget the risk of inflationary collateral damage. If QE is deemed to be missing its target, that is a far greater concern.'

This was written for our sister website, Interactive Investor


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