Bank maintains quantitative easing size

The Bank of England has put an end to expansion of its quantitative easing programme.

In an announcement yesterday (February 4th), its Monetary Policy Committee said it had opted to maintain the size of the asset purchase programme at £200 billion.

It also revealed that the base rate has been held at 0.5 per cent for another month, meaning the figure remains at the record low that was set in March of last year.

The bank said it based the decision on its desire to ’keep inflation on track to meet the two per cent inflation target over the medium-term’.

Royal London Asset Management economist Ian Kernohan said that news brought ’no big surprises’.

He also issued predictions for the coming months, predicting interest rates will have risen by the end of the year and noting that it is unlikely quantitative easing will be added to in the months to come.

Duncan Higgins, senior analyst at Caxton FX, stated that ’few’ people were anticipating an extension to the asset purchase programme.

Jeremy Beckwith, chief investment officer at Kleinwort Benson commented ’The MPC has a very tricky job at the moment – they have to balance the short term risks of a rise in inflation above the three per cent maximum in the target range, yet their own economists see substantial risks of inflation falling back over the next few years and in some scenarios actually falling below the per cent minimum of the same target range. In addition the recent Q4 GDP number of only plus 0.1 per cent, shows the UK economy lagging badly behind the recovery in other Western countries, and the UK still has an enormous output gap. To complicate matters further, the public finances are in a mess and future policy action must include (after the election of course) some sort of fiscal tightening, and of course the health of the banking system remains delicately poised.’

’It is notable that they have called a ’pause’ not an ’end’ to the Quantitative Easing programme – they still feel the need to leave open the possibility of further QE purchases, and this indicates the bias in their thinking. They remain, as Mervyn King said last year more worried about the risk of deflation than they are about the risk of inflation. We believe it is quite possible that later in the year further QE is required, and our interest rate view remains that rates will stay very low for several years, with the earliest possible date for an increase in UK Base Rate being the end of 2010.’ ADNFCR-2318-ID-19599600-ADNFCR