Bank increases QE by £75bn

6 October 2011 | By Natalie Thomas

The Bank says a deterioration in the outlook for the economy has made it more likely that inflation will undershoot the 2% target in the medium term and in order to keep inflation on track to meet the target over the medium term, the committee judged that it was necessary to inject further monetary stimulus into the economy.

It says inflation is likely to rise to above 5% in the next month or so, boosted by already announced increases in utility prices. But measures of domestically generated inflation remain contained and inflation is likely to fall back sharply next year as the influence of the factors temporarily raising inflation diminishes and downward pressure from unemployment and spare capacity persists.

The committee expects the announced programme of asset purchases to take four months to complete and the scale of the programme will be kept under review.

Minutes from the MPC’s September meeting showed Adam Posen had called for a further £50bn of quantitative easing and all nine members voted to keep interest rates on hold at 0.5%.

Barry Naisbitt, chief economist at Santander, says: “While pressure for more quantitative easing has been growing in some quarters, the expectation of such a move built up after the publication of the September MPC minutes.  

“With weak economic data recently both in the UK and in some of its main export markets and GDP growth in the second quarter now shown to have been just 0.1%, further quantitative easing is seen as one mechanism to boost economic activity and confidence.

“So with the economy barely growing in the second quarter, households’ real incomes being squeezed by high inflation, consumer confidence ebbing away, and evidence of slowing output growth in some sectors, MPC members have today decided that the economy needed some more policy impetus to boost confidence and growth.  

“Markets will be looking to the MPC minutes for more comment on this change and to see if the MPC was unanimous in adopting it.”  

The Bank of England put a halt to its quantitative easing programme in February 2010 after buying £200bn of assets.

The Bank first announced it was pumping £75bn into the economy in March 2009.

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