Boost from QE overestimated by Bank of England ­– report

City A.M. Reporter
THE BANK of England overestimated the impact of its initial quantitative easing programmes, it emerged this morning, while the latest round of asset purchases could be less effective than previously thought.

A study by the Bank of International Settlements (BIS) reveals that the policy caused yields on government debt to fall by only a fraction of the amount estimated by the Bank in September – shortly before it engaged in an extension of the scheme, dubbed QE2.

The autumn edition of the Bank’s quarterly report estimated that gilt yields reacted to news of the first quantitative easing schemes (QE) by falling “just under 100 basis points”.

Yet today’s report says that QE in the UK “on average lowered yields by 27 basis points for gilts with a remaining maturity of five to 25 years.”

The report also warns that future rounds of asset purchases, kicked off in a desperate bid to revive the struggling economy, could have a lesser impact than their predecessors.

“It may be harder to achieve the same degree of effectiveness as with the initial programmes once the surprise or novelty element wanes,” it states. The report also notes that the yields on long-term UK government debt are “already very low”.