THE MONETARY Policy Committee (MPC) sat tight yesterday, keeping interest rates and the quantitative easing (QE) programme unchanged, despite growing fears that the economy is contracting again.
Economists believe the Bank has lost faith in QE as a way of boosting demand, and instead is relying on the Funding for Lending Scheme (FLS) to boost credit and increase consumer spending and corporate investment.
Under the FLS banks are offered cheap funds from the Bank of England, with the intention that they lend more.
“Our central case is that the MPC will pursue more loosening via seeing the FLS scheme rather than gilt purchases, where they seem to have lost some faith in its effectiveness,” said BNP Paribas’ economist David Tinsley. Although “recent comments from MPC members have displayed a willingness to countenance more QE if the outlook deteriorates.”