Bank 'should end quantitative easing'

Yesterday’s increase in consumer price index (CPI) inflation should encourage the Bank of England to end its quantitative easing programme, it has been suggested.

Figures released by the Office for National Statistics on Tuesday showed that CPI rose from 1.9 per cent in November 2009 to 2.9 per cent in December - the largest monthly increase on record.

And analyst at Currencies Direct Phil McHugh stated: ’The rise in CPI coupled with more positives from the UK economy should be a catalyst for the Bank of England to call a halt to quantitative easing in February.’

However, he admitted that it is unlikely quantitative easing will end completely, as the effect the move has had on inflation has not yet been fully realised and the Bank will not want to create further inflationary pressure.

Mr McHugh also predicted that CPI is likely to be higher for the remainder of the first quarter of the year, before dipping again in later months.

Jeremy Beckwith, Kleinwort Benson’s Chief investment Officer, said: “The Bank of England was anyway due to come to the end of its QE program at the end of this month and it is generally expected that it will formally announce a pause at its February meeting. It is however a long way from reversing its QE policy (which, when it occurs will be called QT - Quantitative Tightening). The UK inflation number was disappointing, but Mervyn King was quick to say that in the BoE’s eyes, the medium-term outlook for inflation is better than the outlook over the next few months, which will be impacted by the sharp increase in the oil price on year-on-year basis as well as this month’s increase in VAT back to 17.5 per cent.’ADNFCR-2318-ID-19567598-ADNFCR