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Bank of England resists QE boost

No extension to the existing £325 billion quantitative easing programme, and interest rates will remain at 0.5%.

 
Bank of England resists QE boost

The Bank of England refrained from providing any new measures to boost the economy today, while holding interest rates at their record low of 0.5%, even as worries grow about the impact of a worsening eurozone crisis on the UK.

As expected by most City economists, the monetary policy committee (MPC) voted against an extension to the existing £325 billion quantitative easing (QE) programme.

Data published this morning, showing an unexpectedly strong performance in the services sector in May, had lowered expectations that the nine-man MPC would make any changes to monetary policy at the end of their two-day meeting.

However, above-target but sharply falling inflation – down at 3% on the CPI measure – a stagnant UK economy and growing threats from the eurozone meant that inaction by the Bank was not a certainty.

A particularly bad reading of factory output for May, released on Friday, had raised some banks’ expectations that the Bank of England would inject as much as £50 billion more into the economy in an extension of its bond-buying programme.

The manufacturing PMI index dropped from 50.2 to 45.9 in May, its lowest level for three years.

And revised figures published at the end of May showed that the UK economy contracted even more than first estimated in the first three months of 2012, with a decline of 0.3%

The details of the committee’s reasoning, always closely scrutinised by economists, will be published on 20 June.

The base interest rate has been held at a record low of 0.5% since March 2009.

9 comments so far. Why not have your say?

R.Linger

Jun 07, 2012 at 12:45

I was glad to hear that the B.O.E.has decided not to increase Q.E. as it has always been a total failure and does not take into account the imbalance of the economy. Interest rates should be increased and therefore banks will have increased resources from foreign countries and the "grey pound" pensioners will have more to spend, instead of eating into whatever capital they have and with a more balanced economy, growth will increase.

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MC

Jun 07, 2012 at 13:10

Printing more money will not solve the problem. It is not BoE's role to counter the delveraging of the Banks. They massively over leveraged now they are deleveraging.

If you want to know why the country is in a mess look at the M4 money supply graph it tells you all you need to know. Exponential growth in money supply, led to exponential growth in property/other asset values. This growth came from overleveraging bank balance sheets. Banks need to deleverage. Asset prices likewise need to fall.

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Bernard Crompton

Jun 07, 2012 at 16:13

Good that there is no more Q.E. this month but bad that interest rates have not been raised. For me as a pensioner this means yet another month of not spending on anything other than essentials. It is pensioners that have been suffering more than any other group during the financial crisis of the last few years. Low interest rates on savings, low annuity rates, badly performing stock markets,and high rates of inflation. The situation is made worse because it was not pensioners who caused any of the problems in the first place. As any form of Q.E. is really printing money, why does the Government not give out free spending vouchers to pensioners to compensate them in some way and to help to get the economy moving again?

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Chris Adams

Jun 07, 2012 at 16:22

Sorry but I cant subscribe to either opinion above. The Eurozone debt crisis apart, - serious lessons need to be learnt from the aenemic approach of the Japanese government when their economy fell apart 20 years ago and still yet has to meaningfully recover. M4 money supply (bloomberg 5yr chart ) has dropped to dangerously low levels that is creating blockages in the flow of capital. Unfortunately the banks are being asked to build their capital base and increase lending both at the same time. Its obvious which they will give priority to. The other point about raising interest rates ( look at the high premium charged by banks over base) will extinguish any hope of growing the economy. Generally speaking , pensioners are not price elastic consumers who because they earn a little more interest on their savings will go out and spend more. Businee people are much more price elastic becauese of their attitude to risk - . raise rates and you kill the appetite for risk and growth. Interest rates must be cut and QE expanded but with the assurance that the next 50 bln becomes money that is lent by the banks.

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Neil M2

Jun 07, 2012 at 17:40

Bernard Crompton: Many pensioners are sitting on large expensive houses with more than one empty room. They refuse to sell and downsize, thus failing to benefit from the cash windfall this would generate. So they have no right to complain about being poor.

No money should be printed. But if it is it should go to the young who are the poorest of all.

And as for low annuity rates for pensioners; it's because you lot are living too long. So go and die a bit sooner!

..I don't really mean that :-)

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Clive B

Jun 07, 2012 at 18:41

Neil M2

I think you should retract your "joke" about pensioners

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Neil M2

Jun 07, 2012 at 19:05

Clive B: Sorry! Joke retracted :-)

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an elder one

Jun 07, 2012 at 20:28

I suspect it wasn't a joke at all, judging by the general context; will people (probably the younger) please stop complaining on behalf of the elderly to suit their arguments.

Octogenarian

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Neil M2

Jun 07, 2012 at 21:39

An Elder one: Yes it was a joke.

My final paragraph should have read:

"And as for low annuity rates for pensioners; it's because you lot are living longer due to medical advances etc. So accept your additonal longevity for the good fortune that it is, and stop complaining that the effect of this is to reduce your annuity-funded annual pension payments, because the annuity fund has to be spread out across a longer time before death."

But I didn't want to be boring and write all that!

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