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Capital Economics says QE set to rise again in 2012

The Bank of England will be forced to expand its programme of quantitative easing later this year in an effort to mitigate the effect funding pressures are having on the mortgage market, according to Capital Economics.

Last week, the BoE’s monetary policy committee left bank rate at 0.5 per cent for the 37th consecutive month and left QE at £325bn.

In February, the MPC increased the size of the QE programme by £50bn to £325bn, which is expected to complete next month.

Capital Economics UK economist Samuel Tombs says: “Banks’ funding costs have increased in response to the deterioration in the eurozone over the past year. Over the past two or three months, banks have been passing this increase on to their customers by increasing their mortgage rates.

“We feel this means that the MPC will therefore need to undertake further asset purchases simply to preserve the current level of monetary stimulus.”

Capital Economics predicts the MPC is unlikely to increase its QE programme next month but expects an increase before the end of the year.

It also predicts the Bank of England’s programme of QE could eventually reach £500bn.

Emba group sales and marketing director Mike Fitzgerald says: “I think there will be more QE and there needs to be, because the funding pressures that lenders are facing are not going away. If the Government does not increase its QE programme, rates could continue to rise.”

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