Bank of England Ramps Up Quantitative Easing

Minutes released today of the meeting of rate-setters of the Bank of England, held on Oct 5 and Oct 6, indicate a unanimous vote for another dose of quantitative easing of 75 billion pounds ($118 billion).

The decision was probably triggered by the fact that growth in the economy had slowed and could in fact be zero by the fourth quarter. Household spending and exports had slowed, and the overhang of the eurozone’s debt crisis was another factor that propelled the decision.

“We continue to expect at least another 75 billion pounds extension of the program in February, and perhaps considerably more thereafter,” said Jonathan Loynes, chief European economist at Capital Economics.

According to a recent report by the Bank, QE1 had had a positive impact on the economy, though the same was difficult to quantify.

Experts differ, and Nida Ali, economic adviser to the Ernst & Young ITEM Club, is of the view that “Even if the transmission channels work as intended, and this extra money does find its way onto the balance sheets of large companies, we think they would be more inclined to hoard it rather than spend it on investment.”

However, in a recent speech, Bank of England Governor, Mervyn King, rationalized the move by saying that “without monetary stimulus – low interest rates and large asset purchases – there is a risk that growth will stall and inflation fall below our symmetric 2 percent target.”