Bank of England holds back on further QE...

The new Governor Mark Carney’s inaugural meeting as the Chairman of the Bank of England’s (BoE) Monetary Policy Committee (MPC) saw them vote 9-0 to keep their current quantitative easing (QE) programme at its existing level.

However, the minutes of the July meeting also revealed that two members of the committee, Paul Fisher and David Miles, had voted in favour of expanding QE in the previous June meeting, stating that such increased stimulus was “warranted”.

It should also be noted that those two members, together with the previous Governor, Sir Mervyn King, had recommended an additional £25bn of QE over the last few months; whereas Mark Carney’s view is that the MPC should adopt a more holistic approach to the policy tools available to them. His main driver is to boost confidence and through that, growth in the economy. To help achieve that he hopes to keep interest rates low and so encourage consumers to borrow more to boost the demand side.

With the current QE programme having already purchased £375bn of assets, primarily UK Government Gilts, the statement that QE will be curtailed, albeit temporarily, boosted the pound on the foreign exchange markets. With the prospect of monetary easing being less likely, sterling rose against the dollar to $1.5247, although it did dip a little later. This stronger sentiment for sterling was further boosted by the UK unemployment figure for the three months to May, showing that it fell by 57,000 to sit at 2.51 million or 7.8% of the labour force.

The MPC noted that whilst growth was “weak” there were signs that the economy was improving. Future growth will be dependent on consumer confidence. To emphasise this opinion they added: “Growth in the second half of the year would depend in large on the behaviour of the household sector.”

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