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More QE could push inflation to 6%

Simon Embley

Another round of quantitative easing could push inflation to 6 per cent, according to LSL Property Services.

Figures from the Office of National Statistics show the UK consumer prices index rose to 4.5 per cent in August, up 0.1 per cent from 4.4 per cent in July. The last change to the BoE’s quantitative easing programme came on November 5, 2009, when the BoE increased its size by £25bn to £200bn.

The BoE’s Monetary Policy Committee has previously stated inflation could peak higher than expected, reaching 5 per cent, but it said this would fall back to the Government’s long-term target of 2 per cent throughout 2012 and into 2013.

The MPC will meet this week to decide whether to make any changes to base rate and whether to increase QE.

LSL Property Services group chief executive Simon Embley says inflation could hit 6 per cent if the external inflationary factors which are pushing up UK inflation remain.

He says: “The last round of quantitative easing boosted growth rates by about 2 per cent and it also put 2 per cent on inflation. We could easily be looking at 6 per cent inflation.

He adds: “We are assuming that if the underlying inflation we have in the economy today, a large proportion of which has come as a result of stuff which is beyond our economy’s control, remains the same. If there is no change to imported inflation, quantitative easing will add to that inflation problem.”

Meanwhile, the British Chambers of Commerce has called on the Bank of England to implement another round of quantitative easing, pushing the size of the programme to £250bn, as well as other “radical methods” to bolster growth.

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