No QE from BoE

The Bank of England has decided not to extend its quantitative easing (QE) stimulus programme, which has injected £375bn into the UK financial system.

Under QE, the Bank creates money and uses it to buy government bonds to try to stimulate the economy.

The Bank’s Monetary Policy Committee (MPC) also decided to keep interest rates at 0.5%, the record low they have been held at since March 2009.

The UK came out of recession recently, growing 1% between July and September.

But a succession of poor economic indicators and corporate results has led many observers to believe that the economy is still weak, leading to speculation that more QE would be needed.

Indeed, the minutes from the last MPC meeting in October showed that some members thought more QE would be required at some point in the future.

“We are pretty sure that the economy will need more stimulus in the months ahead,” said Vicky Redwood of Capital Economics.

“And we do not think that the committee is out of firepower yet.”

On Wednesday, the European Commission cut its 2013 eurozone growth forecast from 1% to just 0.1% and said it expected unemployment to continue rising next year.

As about half of Britain’s trade is with Europe, the commission’s forecast, if accurate, could have a significant knock-on effect for the UK.

But the jury is out on whether QE is effective enough at stimulating consumer spending and business investment.

In July, the Bank launched its Funding for Lending Scheme (FLS), aimed at encouraging banks and building societies to increase the size and frequency of loans they make to consumers and small businesses.

Under FLS, the Bank lends money to the financial institutions at below market rates, and offers a better deal to those who make the most loans.

As yet there is no published data showing how well the scheme is going.

However, on Friday the Bank is due to release statistics showing the lending rates being offered by financial institutions, and a general lowering of rates could indicate that FLS is beginning to work.

BBC World News

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell