MPC likely to opt for £50bn QE extension
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The Monetary Policy Committee is likely to increase its quantitative easing fiscal stimulus package by as much as £50bn this week.
The MPC has previously stated that it would pause the stimulus at £175bn, which has now been spent, but in light of the news that the UK’s GDP is still in negative territory, it is likely it will be forced to continue buying gilts.
Barclays Capital analyst Moyeen Islam is one of many voices that think the MPC will likely increase the programme to £225bn.
Islam says: “After the Q3 GDP data, the market has seen a turnaround in sentiment and now expects a further addition to the easing programme.
“The market has found it difficult to rally sharply. This suggests that market positioning still remains biased towards longs, although anecdotal evidence suggests that the amount of risk being run has also been steadily falling so implying that there is little appetite to add to existing positions. An extension of the programme will see the market trade more firmly.”
Commerzbank analyst Peter Dixon agrees that the MPC will increase easing by £50bn. He says an increase of £25bn would only fund one month of gilt purchases, which recent data suggests would not have a big enough impact.
He says: “The economy today is far away from where the Bank expected it would be three months ago. If the policy is to be truly effective, we would look for a more substantial liquidity injection. An expansion of £50bn should at least see us through year-end by which time a monetary injection equivalent to 16 per cent of GDP should be given time to work.”
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