Newspaper article The Evening Standard (London, England)

City Shocked as Bank Pulls Back from Printing Money

Newspaper article The Evening Standard (London, England)

City Shocked as Bank Pulls Back from Printing Money

Article excerpt

Byline: Robert Lea

THE Bank of England today shocked City investors as it turned off the printing presses on its so-called quantitative easing programme.

Sterling rocketed up to be more than 1.5 cents stronger against the dollar within seconds of the announcement.

The City is now split over whether or not we have seen the end of "QE".

The Bank's monetary policy committee also kept interest rates on hold for the fourth month running since it cut its base rate by half a point to an all-time low of 0.5% in March.

In a statement after the monthly MPC meeting today, the Bank said it is continuing with its programme of pumping [pounds sterling]125 billion into the financial sector.

But the Bank, led by Governor Mervyn King, said it is not going back to the Treasury to ask for permission to increase the programme of quantitative easing as it has only spent [pounds sterling]112 billion of the agreed facility so far. Its wait-andsee stance would be reviewed in early August, said the MPC, when it has more up-to-date inflation projections.

The statement was taken by some as potentially an end to the QE programme to reflate the economy and George Buckley, UK economist at Deutsche Bank said: "Unless we see some really bad forecasts in the Inflation Report, the MPC might not continue with QE at all. It seems likely now that, given that the data has been a bit better, that might actually prevent them from doing any more at all."

Bronwyn Curtis, head of research at HSBC, said the Bank had already been "very pre-emptive" in its QE programme and predicted a pause.

"They've put twice as much money into their QE programme this year as the US Federal Reserve, so we really think they probably want to see what the impact is on the economic data."

Others think a break is wrong. "With the growth outlook still looking poor, with real household disposable income under pressure from rising unemployment, falling wage rates, and higher petrol prices, at a time when credit is still being heavily restricted, there is room for more policy action," said James Knightley, head economist at ING. …

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