More QE ‘likely in New Year’

ANALYSTS expect the Monetary Policy Committee to consider a fresh round of quantitative easing in the New Year after the minutes of its last meeting were published.

The minutes of the December get together reveal the Bank of England’s interest rate-setting committee voted unanimously to maintain interest rates at their historic low level of 0.5% and quantitative easing (QE) at £275bn.

Members of the committee considered further QE “might well become warranted in due course” but the balance of risks facing the UK economy had not fundamentally changed since the previous month.

Coverage of the MPC’s decisions is brought to readers of TheBusinessDesk.com in association with stockbrokers Redmayne-Bentley.

Carolyn Black, from Redmayne-Bentley, said: “Following November’s meeting when the MPC voted 9-0 in favour of leaving interest rates unchanged at 0.5% and the asset purchase program at £275billion, it is no surprise that the same sentiment is being echoed in this month’s minutes.

“With 2012 inflation and growth concerns still ringing loud in investors’ ears, coupled with increasing uncertainty over the UK’s future relationship with the eurozone, another unanimous MPC decision was announced to maintain the status quo.

“There is an expectation that we will require further financial stimulus in the near term and that further quantitative easing ‘may well be warranted in due course’ but, given that it is only two months since the last quantitative easing program was rolled out, it is likely that the impact of this has still not been fully felt and policy makers will be carefully monitoring its effects before committing to another round of stimulus, perhaps in the spring.”

The minutes showed the MPC members continued to be concerned about the impact of the eurozone crisis on the UK economy.

David Kern, chief economist at the British Chambers of Commerce, said: “The committee is right to highlight that the major problems facing the eurozone pose a significant threat to the UK. While we have not yet seen these risks crystallise, concerns that the situation will worsen are affecting the ability of banks to fund themselves smoothly.

“Given the risks facing the economy in the near future, with minimal growth set to continue and unemployment likely to increase, the MPC should expand QE by a further £50bn early in 2012. Increasing QE would help to sustain demand in the economy, and keep the exchange rate at a competitive level. However, the impact of more QE would be enhanced significantly if the Government swiftly implements the credit easing programme, improving the flow of lending to viable businesses.”

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