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Bank boosts QE by £50bn

The Bank of England expanded its quantitative easing programme today, as widely expected by the markets.

In its monthly meeting, the Monetary Policy Committee voted to add another £50 billion to its asset purchase programme. The committee also held the base interest rate at its historic low of 0.5 per cent for the 35th running.

The moves takes the size of the QE programme from £275 billion to £325 billion.

Explaining the decision, the Bank says: “In the light of its most recent economic projections, the committee judged that the weak near-term growth outlook and associated downward pressure from economic slack meant that, without further monetary stimulus, it was more likely than not that inflation would undershoot the 2 per cent target in the medium term.”

The MPC launched a second round of QE in October, when it added £75 billion to the programme. Most commentators expected the MPC to further expand the programme this month, after the second bout ends.

David Kern, chief economist at the British Chambers of Commerce, says: “An increase in QE is necessary, as the challenges facing the UK economy and the ongoing problems in the eurozone highlight the need to sustain confidence.”

Howard Archer, chief UK and European economist at IHS Global Insight, notes that the UK economy still faces significant domestic and international headwinds, despite positive services, manufacturing and construction data for January.

“With GDP contracting 0.2 per cent in the fourth quarter of 2011 and the economy currently still facing a highly challenging environment despite an apparent pick-up in services and manufacturing in January, there are compelling reasons for the Bank of England to administer further stimulus for the economy,” he adds.

The National Association of Pension Funds says that although it understands the need for “more medicine”, it will hit pensions.

Its chief executive Joanne Segars says: “We think the last QE hit of £75m increased pension fund deficits by around £45bn, and the latest tranche will only add to that bill. The Pensions Regulator needs to set out the details of how it is going to help pension funds cope with QE. Possibilities include extending recovery periods, smoothing valuation results, and postponing valuation dates.”


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