Azad Zangana (pictured), European Economist at Schroders, on the Bank of England's decision to restart quantitative easing…
“The Monetary Policy Committee concluded their meeting this month by voting to expand the Asset Purchase Scheme from GBP200bn to GBP275bn, with purchases to complete over the next four months. The committee also voted to keep interest rates on hold at record low levels of 0.5%.
“The Bank of England has moved quickly to restart quantitative easing (QE) as fears mount of a double-dip recession. ONS figures released earlier this week showed that the recession had been deeper than previously estimated, while growth in recent quarters had also been revised down. In addition, the Bank of England is clearly concerned by the crisis engulfing the Eurozone – the UK’s largest export region.
“In our view, the restarting of quantitative easing will boost confidence and asset prices in financial markets, but we remain sceptical over its power to restart lending, and therefore have a meaningful impact on the real economy. Where QE might have an impact is on Sterling. If the purchases of assets leads to a depreciation in Sterling, then this could boost demand for UK exports. However, this would also raise inflation for households, who are already struggling to make ends meet. Please see the latest Economic & Strategy Viewpoint here for in-depth analysis:
“Given our scepticism on the impact of QE, we would not be surprised if the Bank of England is forced to announce even more QE in February 2012, as the latest programme comes to an end.”