Member Article

More QE is possible say economists

It is still possible that the Bank of England will inject further stimulus into the UK economy, according to Reuters.

In response to escalating problems in the Eurozone, the Bank is expected to cut growth forecasts and increase medium term inflation predictions towards the 2% target. While this does not indicate that stimulus will happen immediately, it could happen if conditions get worse.

The Bank of England Governor Mervyn King is now set to face questions after the Bank’s decision last week to halt the money printing press due to worries over high inflation overcame concerns about an economy slipping back into recession.

The Governor will also be forced to answer questions from critics calling on the banks to offer more direct support to firms and consumers.

Commenting on the news, Gary Stockdale of Vertem Asset Management said: “I think more QE is inevitable because the UK is actually underperforming the Eurozone. The problem is it will not do any good. It will just perpetuate the bubble in the gilt market which looks more and more like a ponzi scheme.

Earlier in the year King predicted that the UK was on course for a slow, steady recovery later in the year, with reference to more upbeat business surveys and a recent increase in employment. However, since the financial crisis, the Bank has consistently overestimated growth and underestimated inflation.

Earlier in the year the Bank predicted a robust first quarter, but in reality fell short of the Bank’s forecast of 1.1% annual growth, while inflation levels hit 3.5%, which was higher than the Bank’s initial predictions.

Gary continued: “How will low gilt yields help mortgage holders who have seen the Standard Variable Rate raised by all the major lenders? How will it help smaller businesses get credit to expand when banks are being told to raise capital and deleverage?

“Regretfully King has been completely bamboozled by the complexities of the credit crisis and does not know what to do, and more QE is merely a desperate act.”

This was posted in Bdaily's Members' News section by Ruth Mitchell .