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MPC member prefers rate cuts to more QE

A Monetary Policy Committee member favours cutting interest rates ahead of a further round of quantitative easing.

Martin Weale says there is no need for further monetary stimulus as the funding for lending scheme will be a “reasonably powerful effect”.

He says: “If it were clear that the interest rate could be reduced without finding some banks got themselves into a position where they had to reduce lending because of the effects of an interest rate cut on their profits, and if it were clear a reduction in interest rates would be like all other reductions in the interest rate, I think I would probably prefer that to more QE, if I was choosing between them.”

Last week the Bank of England robustly defended its asset purchase programme claiming it had boosted the economy and there has been no impact on pensioners.

In its report, Assessing the Distributional Effects of Asset Purchases, it states: “The fall in gilt yields raised the value of the pension fund’s liabilities. But the associated increase in bond and equity prices raised the value of their assets by a similar amount.”

Industry consultant Mehrdad Youseffi says there will be no action until the effects of the funding for lending scheme are known.

He says: “The financial markets have broadly priced in a rate cut to 0.25 per cent as evidenced by lower one year swaps in the past few weeks but a bigger reduction to just 0.1 per cent should not be ruled out.”

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