More QE on the way?
A senior Bank of England policymaker has raised the prospect of a further round of quantitative easing in the UK.
Paul Fisher, who is executive director for markets at the Bank, has said that the Bank of England has not ruled out a further round of quantitative easing in order to stimulate the UK economy.
This would be in addition to the £200bn that has already been pumped into the UK economy to improve liquidity.
Commenting on the likelihood of another round of QE, Fisher was quoted in Investment Week as saying:
“I have said in the past [QE] is still very much on the table as one of our potential policy actions, and it’s certainly not ruled out, and people need to be aware of that.
“On the other side, the economy could be much weaker than we expect, pushing down on inflation and risking deflation. Recovering to the target from that could be even harder, at least in my personal view.”
Based on these comments, we would not expect to see the Bank starting with another round of QE in the immediate future.
Price inflation remains well above the government target, although this is being driven largely by external and temporary factors which would not be controlled by higher interest rates.
Assuming the economy continues to deliver a weak recovery, inflation could start to fall once the VAT rise was removed from the calculation and global commodity prices fall. At that time, further QE could become important to kick-start the economy and avoid a period of prolonged deflation.
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