Bank of England launches ‘QE2’
THE Monetary Policy Committee launched a fresh round of quantitative easing today on the back of concerns about the strength of the UK recovery.
Its decision to increase the size of its QE programme from £200bn to £275bn came in the wake of a wave of downbeat data on the economy including revised second quarter growth figures.
The £75bn increase was more than had been predicted with most analysts guessing the rise would be £50bn.
THE MPC also voted to keep interest rates at their record low of 0.5%.
Sara Fowler, senior partner for Ernst & Young in the Midlands, said: “With this week’s announcement that the economy grew by just 0.1% between April and June it was expected that the MPC would take the decision to hold interest rates at 0.5%.
“This will be welcome news to the region’s businesses who continue to be faced with extremely difficult economic conditions.
“There was some reason for positivity in the Midlands this week with the announcement that the UK’s manufacturing sector grew for the first time in three months during September. However the UK economy is still fragile and local businesses must look to export to new markets to find growth.”
Mark Smith, regional chairman at PwC in the Midlands, said the committee’s decision to keep interest rates on hold and proceed with more quantitative easing was a timely one in light of the latest growth figures.
“Keeping rates at an historic low will come as a relief to many Midlands businesses at a time when growth figures show the economy is continuing to struggle, with demand for goods weakening and the latest manufacturing Purchasing Managers Index (PMI) suggesting an underlying weakness in the sector.
“The potential fallout from the ongoing sovereign debt crisis could challenge UK businesses further as they strive to stay focused on cash management and look for opportunities to sustain growth through the remainder of this year,” he said.
Katie Teasdale, head of policy, at Birmingham Chamber of Commerce Group, said any rise in interest rates would have damaged sterling’s competitiveness abroad, threatening exports.
Louise Bennett, chief executive at Coventry & Warwickshire Chamber of Commerce, was another to support the extension of QE.
She said: “Growth is still not near the levels any of us would like to see and further stimulus, such as QE, could help to get the recovery back on track.”
Andrew Connors, area director for Lloyds Bank Corporate Markets in the West Midlands, said the continued difficulties in the Eurozone had put fresh pressure of the Bank of England to provide further QE.
He said even had the Bank held off from an extension this month, a rise in November would have been inevitable.
