More QE likely next month as rates are held

Tim Wallace
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EXTRA asset purchases are likely to be announced next month, economists believe, after interest rates and the quantitative purchase (QE2) scheme were both left unchanged yesterday by the Bank of England’s Monetary Policy Committee (MPC).

The base rate still stands at the record low level of 0.5 per cent, whilst the latest £75bn of asset purchases is due to be completed in February, after running for four months.

February also sees the next Inflation Report from the Bank, which will give more information on the MPC’s likelihood of hitting its two per cent consumer price inflation target in the medium term.

“In November the Bank projected that the current £275bn QE programme is unlikely to be enough to keep inflation on target over time,” said Citi’s Michael Saunders.

“Since then, inflation data have been roughly in line with the forecast. Prospects for growth have probably also worsened, with weakness in recent surveys and the deterioration in the euro area outlook.

“Hence, we believe that the forecasts prepared for the February Inflation Report will show that sizeable further stimulus is needed to prevent inflation undershooting over time, thereby paving the way for a further large increase in QE at the February meeting.”

Bank of England Governor Mervyn King (pictured, left) is due to make a speech on 23 January in which he could give further pointers to a further round of QE next month.