“The Bank of England’s Monetary Policy Committee decided to keep interest rates on hold at 0.5%, but to add further stimulus through their asset purchase programme, otherwise known as quantitative easing (QE). The bank will buy an additional £50 billion pounds over the next four months, which will take the total size of the programme to £375 billion.
“The latest to the bank’s quantitative easing programme was widely expected after several comments from Governor Mervyn King that he felt that the economic situation had deteriorated sufficiently to warrant a change action. The policy U-turn comes a mere 8 weeks after the bank decided to extend to extend their QE programme.
“In our view, the additional £50 billion of purchases will do little to stimulate the economy. Gilt yields are close to record lows, leaving little room for a further discount to feed through to banks and households. In addition, banks are still under tremendous pressure to deleverage, restricting the amount of lending they are prepared to do. Moreover, because of the huge uncertainty caused by the Eurozone crisis, there is little appetite for businesses to take new risk and invest in the economy. Against a backdrop of continued austerity, we expect the UK economy to stagnate at best over the next 18-months, and the Bank of England to return later this year with even more quantitative easing.”
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