The Bank of England has today decided against adding to its
asset purchase facility (quantitative easing programme), which remains at £375
billion. The result has been some further support for the pound, so cleary
there were some lingering suspicions that the MPC doves would do enough to
persuade a majority to vote in favour of QE. The BoE base rate also remains at
0.50%, though this was universally expected.
Despite disappointing updates from the UK services and
manufacturing sectors in the past week, the MPC was always likely to hold fire
on the issue of further QE this month. The UK GDP figure for Q3 would have
firmed up several MPC members’ positions and from the comments emanating from
the committee, several members doubt not only the need for further QE but the
capacity of the measure to actually make a material impact. In addition the BoE
thinks that the 2.0% inflation target will be hit regardless of more QE, due to
persistently high inflation.
Whether or not the BoE will decide that further QE is necessary
in the coming months really depends on whether the recovery that was indicated
in Q3 materialises. QE should be seen as an emergency measure and UK data has
revealed a slight uptrend of late, so it really wasn’t necessary in the absence
of any fresh shockwaves. If the debt crisis or the eurozone downturn drags the
UK back into a triple-dip recession then there is little doubt that the BoE
will once again come to the rescue. As it stands though, its case of wait and
see how this recovery progresses.
Richard Driver
Currency Analyst
Caxton FX
