BoE Holds and Prints
today injected an additional ?50bn into the economyas expected as the UK battles to keep off another recession in the meantime interest rates were kept at a record low of 0.5 per cent.
The Bank’s Monetary Policy Committee (MPC) agreed to increase the quantitative easing (QE) program – effectively printing more cash – from ?275bn to ?325bn despite the risks it poses to the country’s inflation rate.
It is better to have money to spend even if costs are higher then to have no money.
The action will draw criticism from senior’s groups who have warned that further QE could leave more than a million pensioners “permanently poorer for the rest of their lives” due to the adverse effect money-printing has on annuity rates. The fact is, you can never make everyone happy, better to be poor with a monthly check then unemployed with no hopes and unable to pay the mortgage.
Business and Political leaders said further stimulus would “support confidence” and welcomed the decision.
The boost comes amid mixed signs for the economy as surprisingly upbeat industry surveys for January conflicted with a downgraded growth forecast from think-tank Niesr. While unemployment continues to rise and housing sales continue to lag, growth and productivity reports take a back seat.
Economists warned of the potentially damaging impact of recent extreme weather. “The Bank’s decision today to hold interest rates at 0.5 per cent is correct but to inject a further ?50bn of quantitative easing in to the UK economy risks adding to inflationary pressures for business and consumers in the months ahead. “Having just completed the last round of purchases we need time to evaluate the impact of these and must be mindful of the encouraging signs for the global economy’s recovery; so today’s injection is unnecessary and premature.
“This will act as a drag on growth, damage confidence and could lead to the Bank having to take steps to address inflation before the end of the year. “Early signs of the global recovery are likely to boost prices of raw materials and commodities as the year progresses, therefore the inflationary impact of quantitative easing will not be welcome and could led to inflationary problems in the future. “We would have preferred to see no action and rather more done to stimulate investment in infrastructure and by businesses, and Government needs to take bolder steps and action previous announcements on credit easing.”
Low interest rates help drive down the number of repossessions in the UK to the lowest level since 2007, lenders said today. Around 8,500 properties were repossessed in the fourth quarter of the year, 9% down from the previous quarter, the Council of Mortgage Lenders (CML) said. This brought the total for 2011 to 36,200, following previous predictions from the CML, which it later scaled back, that the figure would be around 40,000. There were 36,300 repossessions in 2010.
Good side and bad sides, it’s a difficult balancing act that the Bank of England must do. With the governments austerity plan, there is little the bank can do about growth.
As the overall economic situation throughout Europe worsens it will become more and more difficult for the BoE to offer assistance as their two largest weapons are about expired. If the additional money flow creates inflation, the Bank can deal with that through interest rate increases.
Evidently the currency markets support the move as the GBP picked up strength immediately following the news.
Originally posted here
