View more on these topics

No more QE and base rate held at 0.5%

The Bank of England’s Monetary Policy Committee has held base rate at 0.5 per cent for the twentieth month in a row and has also held its quantitative easing programme at £200bn.

The news follows the US Federal Reserve’s decision to pump an extra $600bn into the economy in the next eight months to bolster its economy.

MPC member Andrew Sentance has called for a 0.25 per cent increase in base rate for the previous five meetings while fellow MPC member Adam Posen first told the Hull and Humber Chamber of Commerce in September the Bank of England should instigate a second round of quantitative easing to avoid making low growth the norm.

The previous change in base rate was a cut from 1 per cent to 0.5 per cent  on March 5, 2009.

A programme of asset purchases financed by the issuance of central bank reserves was initiated on March 5, 2009. The most recent change in the size of that programme was an increase of £25 billion to a total of £200 billion on November 5, 2009.

World First chief economist Jeremy Cook says: “I’m sure there will have been discussion over adding more stimulus, and I expect that Adam Posen will have voted to add £50bn over his misgivings on the latest growth figures. This does not signify that we are out of the woods yet however and I anticipate a £50bn injection post-Christmas.”

PPR Estates director Nick Hopkinson says: “The USA has launched a further round of Quantitative Easing with their usual bluster, in what appears to be a desperate ’shot in the dark’ to try and stimulate their economy.  All the evidence on these high-stake experiments with taxpayer money tends to indicate that QE has done nothing to increase bank lending, that it drives up inflation and has led to new investment bubbles around the world.”

St Trinity Asset Management director Ian Long says: “The MPC have opted to keep the status quo, but interest rates cannot drag along the bottom indefinitely. Inflation remains well above the 2 per cent target, and the economy is growing at a quicker rate than many anticipated. And when they do hike rates, thousands of homeowners will need to re-jig their finances to avoid being caught out.”

John Charcol senior technical manager Ray Boulger says: “Although a no change decision on bank rate today was a foregone conclusion a tiny element of doubt remained over whether the MPC would decide to embark on more quantitative easing, or QE2 as it has been christened. The widely expected standstill on QE as well as bank rate suggests there is little in the Quarterly Inflation Report to upset current market expectations on interest rates. Furthermore, should the MPC in due course decide to extend its QE programme the later it does so the more the likelihood of a Bank Rate increase in 2011 diminishes.”

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment