THE BANK of England is already on course to splash £325bn on asset purchases as it strives to stimulate a flat and endangered economic recovery. Yet many economists feel the situation is bad enough to warrant even more quantitative easing (QE).
David Kern of the British Chambers of Commerce yesterday warned that more QE “is not risk-free, and could be counter-productive” by propping up inflation.
Yet seven of our MPC disagree enough to vote for either £50bn or £75bn more asset purchases to be scheduled for the coming months. Last time around the Monetary Policy Committee (MPC) voted 5-4 against more QE. Today, the balance could tip in favour of governor Mervyn King and his fellow doves.
ALLISTER HEATH | CITY A.M.
“Keep policy on hold – this crisis can’t be solved with increasingly ultra-loose monetary policy, and more QE could have negative side effects. Rather, the onus is on the coalition to deliver the supply-side reforms that are needed to increase economic activity in the long-run.”
SIMON WARD | HENDERSON
“Hold Bank rate and refrain from more QE but strengthen credit easing by extending term repos from six months to three years. There is no shortage of liquidity – real non-financial money is growing at its fastest pace since 2009-10, promising economic improvement by late 2012.”
GEORGE BUCKLEY | DEUTSCHE BANK
“The continued weakness of the UK’s economic recovery, partly the result of strong headwinds from Europe, justifies a further £50bn of asset purchases over the coming months.”
VICKY PRYCE | FTI CONSULTING
“Hold interest rates at 0.5 per cent but contemplate cutting them even further next time. In the meantime engage in more QE. GDP will have been subdued in the second quarter and the Eurozone crisis is far from over despite some progress in the summit at the end of June.”
VICKY REDWOOD | CAPITAL ECONOMICS
“£75bn more QE. Inflation is falling as expected, the economy is in recession and the Eurozone crisis has not been fundamentally resolved. The Bank of England should start thinking about buying private sector securities, too.”
TREVOR WILLIAMS | LLOYDS TSB
“Expand QE by up to £75bn. With clearer signs that inflation will fall below target, and with growth slowing fast, the MPC should ease policy, and possibly buy a wider range of securities. The governor’s push for more QE should not be outvoted this time around.”
HOLGER SCHMIEDING | BERENBERG BANK
“The apparent relapse of the Eurozone into recession as well as weaker data from China and the US exacerbate the UK’s pronounced domestic weakness. With inflation receding slowly, the MPC can afford to do more. I vote for £50bn in additional asset purchases.”
ROSS WALKER | RBS
“While there are legitimate questions about the efficacy of further QE, it is the only monetary policy option that can be deployed immediately to any significant extent. Credit easing measures may in time prove to be a more targeted, effective response. But for now, £50bn more QE.”
GRAEME LEACH | INSTITUTE OF DIRECTORS
“The double dip recession, intensifying crisis in the Eurozone and anaemic UK money supply surely mean one thing: the need for a further expansion of quantitative easing. It will be good to send a strong, positive signal with a £75bn expansion in asset purchases.”