Sir Mervyn opens door to more QE

Tim Wallace
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ANOTHER multi-billion pound cash injection could be on the cards, the Bank of England indicated yesterday, as it published a bearish outlook for the imperilled UK economy.

In its latest Inflation Report, the Bank predicted sluggish growth of around one per cent for next year, with the slump lingering into 2013.

“Following this confirmation about the Monetary Policy Committee’s dovish bias, we forecast £50bn more quantitative easing (QE) in February and another £25bn in May,” said Nomura economist Philip Rush.

The Bank currently holds around 20 per cent of the total gilt market, according to Investec estimates, and last month announced a £75bn extension of its asset-buying programme.

Inflation is expected to fall rapidly into 2012, dropping below target into 2013 and 2014, the Bank of England said yesterday. Bank governor Sir Mervyn King said he believes consumer price inflation will hover at around 1.5 per cent for much of 2013 and 2014. The Monetary Policy Committee (MPC) targets an inflation rate of two per cent.

Much in the predictions is uncertain, from the speed and scale of the fall in inflation to the state of the economy even in a few months’ time.

“We have been going through extraordinary times,” King warned. “In such circumstances there are limits to what domestic monetary policy can achieve.”