The Bank of England has announced a further £50bn of quantitative easing, with interest rates remaining on hold at 0.5%.
This move was widely anticipated, as the UK economy continues to struggle along.
In extending the programme, the Bank has explained that UK output has barely grown for a year and a half and is estimated to have fallen in both of the past two quarters.
The pace of expansion in most of the United Kingdom’s main export markets also appears to have slowed.
Falling price inflation last month opened the door to more QE, which is often feared to be inflationary.
Quantitative easing aims to boost the economy by purchasing bonds. This latest extension of the Bank of England asset purchase programme will take the total amount of bonds purchased from £325bn to £375bn.
Actually implementing this extra tranche of QE could prove challenging; the Treasury has suspended Gilt auctions for a four week period during the Olympics this summer.
More QE is likely to be good news for investment markets, which may have priced this announcement in ahead of today (with the FTSE 100 index of leading UK company shares flirting with the 5,700 as I type this), but potentially bad news for those reaching retirement.
QE tends to depress Gilt yields, which are already at record lows. This translates into lower annuity rates, which means people reaching retirement receive a lower income in return for their pension funds.
It is important to seek professional independent financial advice ahead of exercising any retirement income options, to ensure you get the best deal based on your circumstances and objectives.
Photo credit: Flickr/Stesciuba
