The Bank for International Settlements has warned the Bank of England may fail to boost the economy through the introduction of more quantitative easing.
The quarterly study by BIS suggests the bank is now running out of options to bolster the economy, having increased the amount of QE from £200bn to £275bn in October.
It says: “First, yields are already very low, and the scope for further reduction becomes smaller as more purchases are carried out.
“Second, it may be harder to achieve the same effectiveness once the surprise element wanes. Third, central banks face risks associated with large holdings of securities. For instance, it may affect inflation expectations. Also, it can be difficult to unwind large asset holdings in a way that does not roil markets.”
The study also found the impact of the QE extensions were smaller in the UK and the US than the original injections into the system.
Analysts have indicated that the BoE may increase the level of QE in the UK in February should the current injection not prompt a boost in the economy.
The BoE says that QE has bolstered growth by 2 per cent in the UK but also increased inflation by 1.5 per cent.