Azad Zangana, European Economist at Schroders comments:
“The Bank of England decided to keep the UK’s base interest rate at the record low of 0.5% today, but also decided to expand its asset purchasing programme, also known as quantitative easing (QE), by an additional £50 billion.
“This will take the total purchases of gilts to £325 billion by the end of April. The increase in the Bank of England’s QE programme is worth just over 3% of current nominal GDP. During normal times, when the banking system is functioning correctly, this would be hugely positive for growth. However, as banks are being asked to deleverage, we doubt that this cash injection will prompt extra lending to the real economy.
“The Bank of England released a statement along with the decision announcement, highlighting the downside risks to growth and inflation over the medium term. The statement also mentioned the slowdown in exports heading to Europe, indirectly caused by the eurozone debt crisis.
“The UK economy remains desperately fragile, and with the outlook in Europe remaining gloomy, the latest increase in QE from the Bank of England is unlikely to reduce the risk of a double-dip recession in the near term. We expect the Bank to announce more QE once this latest round ends.”
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