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Bank of England unsure of easing success

The Bank of England’s latest Monetary Policy Committee minutes have revealed its uncertainty around the success of the quantitative easing strategy.

The MPC says M4, or broad money growth had continued to fall in April in opposition the growth of M4 in the non-bank financial corporations’ money balances.

The Bank had acquired just less than £80bn of assets so far, and will buy a further £45bn over the coming months target for purchases. It hopes the money will move from financial institutions into the banks, which will then trickle through to borrowers.

The MPC says there is “tentative evidence that the asset purchase programme was succeeding in boosting the money holdings of institutional investors, a first stage in the transmission mechanism from asset purchases through to the economy

“But as yet there had been no rise in private non-financial companies’ holdings of money.”

Henderson New Star chief economist Simon Ward predicts further quantitative easing is likely to be required to prevent inflation from undershooting the target over the medium term.

He says:
”This suggests that the odds slightly favour the MPC expanding asset purchases to the £150bn current maximum at its July meeting, while simultaneously seeking Treasury authority for a higher limit. However, the Committee could yet choose to suspend the strategy at £125bn if forthcoming business surveys and monetary data show further improvement.”

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