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Pound slumps as Mervyn King backs QE increase

Bank of England governor voted alongside Paul Fisher and David Miles to raise the stimulus scheme to a total of £400 billion.

 
Pound slumps as Mervyn King backs QE increase

Sterling slumped even further against the euro and US dollar after the Bank of England revealed that governor Mervyn King was among a trio of monetary policy committee members who want further quantitative easing.

King voted alongside Paul Fisher and David Miles to raise the stimulus scheme by another £25 billion to a total of £400 billion, but the three were outvoted by the six other members of the committee at their meeting two weeks ago.

The support for more QE marks a shift from previous votes where only Miles had voted for more stimulus. King, who is to be replaced by Mark Carney in the summer, said a week ago that there was ‘cause for optimism’ for a UK economic recovery, but also indicated that it might be acceptable for the Bank to temporarily miss its inflation target.

The pound, which had already been trending lower, shot down 0.8% against the euro to €1.1431. Sterling lost 0.5% against the US dollar to $1.5350. The decline continues a trend of pound weakness this year as markets target the UK’s weak economy against expectations that the eurozone and US economies are improving.

The minutes from the MPC’s meeting make a case for further QE: ‘Further asset purchases, in part by acting to reduce longer-term interest rates and underpinning the value of a broad range of assets, could help the process of rebalancing the economy, and avoid potentially lasting destruction of productive capacity and increases in unemployment’.

The MPC voted unanimously to keep the base interest rate on hold at 0.5%

16 comments so far. Why not have your say?

Geoff Downs

Feb 20, 2013 at 10:01

" against expectations that the eurozone and US economies are improving"

Don't think ordinary working people agree with that!

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mark cromack

Feb 20, 2013 at 10:21

what a load of nonsense, the real reason is that they want sterling to be as weak as possible, to keep the exports going. Full stop.

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Samantha Vickers

Feb 20, 2013 at 11:27

So the Bank of England wants a lower pound. The problem with this is exposed by the excellent analysis quoted below.

"However if we move on from his fevered economic fantasies to reality we see this in the same paragraph.

To sum up, it is possible that the full benefits of the 2007/8 depreciation are yet to be realised

Good isn’t it? It did not work last time so let us do some more! Also there is a deeper clowning going on here as if we take him at face value a depreciation now will not help until 2018 or so when we may not want or need it."

http://www.mindfulmoney.co.uk/wp/shaun-richards/why-if-the-uk-employment-situation-is-so-good-is-the-bank-of-england-panicking/

So as is pointed out above as it didnt work last time,why will it now?

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Mr Tom

Feb 20, 2013 at 15:07

Does this idiot actually know what he is doing?

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A Sick SIPP Owner

Feb 20, 2013 at 15:13

Well, that's probably put paid to my hopes of a half-a-decent interest rate on my savings and cash ISA for the coming April 'end-of-bonus' season.

I wonder how much the more the exchequer accrued from tax-on-Interest income of 2 years ago, compared to last years income, and what heights the additional difference will reach in the coming year.

Notice the 'good' words, and avoidance of negativity phrasing in that sentence.

Yes - I'd also like a job with 6, or is it 7 figure salary, official residence and bonus related to getting paid the salary rather than 'effectiveness in actual performance within the post'

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Mike R

Feb 20, 2013 at 15:14

Mr Tom -- you are not going to get an answer to your question. Cameron is in India-- Clegg is on holiday in Spain , Mark Carney has not yet arrived. And it was democratic -- they waited until after the Coffee and biscuits before taking a vote.

I think you need to be an FX trader it is a one way short - almost a lottery win.

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Andrew Stevenson

Feb 20, 2013 at 15:59

Brilliant. The pound falls. Oil and raw materials are priced in dollars.

Petrol/diesel goes up. Inflation goes up. Wish my pension fund had invested everything in index-linked Gilts (like the clever Bank of England pension fund trustees did!)

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Chris Powell

Feb 20, 2013 at 16:05

The talk of more QE might be enough to lower the pound and an improving economic outlook (see the latest surveys and the employment rate- the growth figures are wrong and will be proved so in 3 years time) might be enough to mitigate any actual increase in QE. Although, the EU and the socialist southern countries might change the outlook for the UK at any stage.

The funny thing is Japan is doing more QE and the UK, Europe and US are still talking about it. So why is gold near 12 month lows?

My own opinion is that because China is not increasing the price of commodities (excluding oil) anymore the real inflation risk has diminished.

China has moved on. This means that inflation is not acting as such a tax to the world economy.

I think investors now realizing the world is not going to end next year and inflation is not a threat so why hold gold? QE is not that important either way so voting for or not £25 billion will make only a token gesture!

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Alan Tonks

Feb 20, 2013 at 17:14

My God what bunch of pathetic weaklings, well all you pseudo-savers out there, you have been dumped on again.

This is the new dictionary definition of an economist, thick as two counterfeit short planks.

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snoekie

Feb 20, 2013 at 20:58

The man was the stooge of Brown Balls, now of Osborne. There is no valid reason, so it must be fraud and a conspiracy between him and the govt because higher petrol prices and power prices will result in more taxes being collected,

Are there not laws against rigging the markets, and the like rules should apply to twits like King and Osborne and that they be prosecuted, given the size of the scam. Minimum term should be 15 years, time served.

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R.Linger

Feb 21, 2013 at 11:08

It is not possible to have growth and inflation as the loss in the money value will cancel out the other. A low value pound will increase the cost of raw materials which this country needs so as to be able to export manufactured goods. We sent our machines to countries such as China India etc.. to export goods to us with cheap labour but they now produce the goods themselves which are then discounted and sold back to us. Which country would wish to invest in a country with low interest rates and a falling currency? This country's economy is now totally out of balance due to a stupid B.O.E.

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Nick-

Feb 21, 2013 at 16:56

King's hero must be Mugabe, the economist genius of Zimbabwe.

Heaven help us.

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Anitaki

Feb 21, 2013 at 17:03

Oil priced in $s

We import oil

= Inflation ready to rocket

What bit of that do you not understand, Merv??

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Chris Powell

Feb 22, 2013 at 09:20

Inflation has not been a big issue in the UK since QE was started. In fact it has not been an issue worldwide. Just look at Japan.

Oil is going up due to China but this is short-term. It is not going up because of lack of supply (US will be exporting gas soon) or too much demand (growth is not existent in many countries).

The main cause of hyper-inflation is wage inflation (UK just announced the lowest earnings growth in decades).

Inflation is not the issue, it is growth and anyone who can't see this needs to go back to school and get some education.

The BOE in the main has done better than say the ECB if a little slow in starting any program. The funding for lending for the mortgage part is working very well and fixed mortgage rates are at record lows. This should have started much sooner. However, it was the coalition that pushed the BOE for this.

The biggest pain for the Fed, BOE and BOJ has been what the investors and Chinese have been doing with the money QE has released to them. Investors have been buying commodities in the bucket load and raising short-term inflation for the whole world. In my opinion this has now stopped. The banks thought that more QE would go in to shares, start-ups and funding for small business but what happened was commodities were bid up due to people thinking QE would cause hyper-inflation. The banks could not envisage this would happen at such a rate. Investors are realizing that when commodities rise they act more like a tax (Fed has been saying this since 2007) and restrains growth. These high commodities price increase short-term inflation but it restrains growth and inflation longer term. The real demand for commodities was never there it was the Chinese and investors with ETF’s bidding it up. When the ETF’s start selling commodities and they have, commodities reduce and the word economy can start to grow without inflation. The UK will benefit as well.

As for the pound over the last 30 years the pound is stuck in the middle of a range with the dollar. The facts are that the dollar has been falling over the last 30 years and so as the pound.

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Geoff Downs

Feb 22, 2013 at 10:18

Chris,

You are right that inflation is not the problem and that commodity inflation is being caused by financial speculation.

Growth is of course a major problem along with debt.

Governments are in a non win situation. If they apply austerity, things could get worse, likewise with stimulus.

The economic position is dangerous and unstable.

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Suze Jamieson

Feb 24, 2013 at 10:50

So... should we be holding funds denominated in dollars, euros or pounds?

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