Shadow MPC calls for QE to be extended
Concerns about the sustainability of UK’s economic recovery and the uncertainty of policy effectiveness mean that eight out of the committee’s nine members have called for further QE this month.
Graeme Leach, chief economist at the Institute of Directors, chose not to recommend an extension to QE because the effect of the policy has not yet been fully realised.
However, Leach noted that it was nonetheless a “close call” to choose not to extend QE.
Previous statements and minutes of MPC meetings indicate the Bank of England is not yet finished with QE and recent disappointing data and fears of a double-dip recession have increased the clamour for the Bank of England’s MPC to extend QE.
A number of economists – including Capital Economics’ Vicky Redwood and Lloyds TSB’s Trevor Williams – believe the MPC should ask the chancellor to authorise further asset purchases beyond £150bn, should it become necessary at a later stage to ensure the UK economy remains on a sustainable path to recovery.
Henderson New Star’s Simon Ward recommends that while QE should be expanded by another £25bn, the pace of asset purchases should be halved to £12.5bn a month.
However, the monetary policy committee could delay the big decisions until August, which is an inflation report month. So far the monetary policy committee has announced QE of £125bn and as of 2 July, the Bank of England had bought £105.5bn worth of assets.