Quantitative Easing - UK

[JonW]

From this morning's news:-

http://business.timesonline.co.uk/tol/business/economics/article6672364.ece

Bank set to 'print' extra £25bn to lift lending

The Bank of England is today set to announce plans to expand its "money printing" programme by a further £25 billion, taking the total to £150 billion, in an effort to force banks to step up lending to consumers and businesses.

The announcement is expected as the Bank's Monetary Policy Committee (MPC) unveils its interest rate decision, with borrowing costs likely to be kept at a historic low of 0.5 per cent in an attempt to lift Britain out of recession.

The Bank unveiled its £150 billion quantitative easing (QE) programme in March, when it pledged to inject an initial £75 billion into the economy by creating money, used to buy government bonds and corporate debt to encourage lending to the rest of the economy.

Today's £25 billion top-up will bring the Bank's scheme to the £150 billion ceiling agreed with the Treasury. The move follows the MPC’s £50 billion May expansion of the QE scheme to a total of £125 billion, more than £100 billion of which has already been spent, mainly on government bonds, or gilts.

There are mounting concerns that banks are still reluctant to lend money and, as a result, stymieing efforts to pull the country out of the economic slump.

The Organisation for Economic Co-operation and Development recently said that boosting lending was vital to reviving growth as credit conditions remain extremely tight and “continue to have a substantial negative impact on activity”.

While Barratt Developments, Britain’s biggest housebuilder, today said that a full recovery in the housing market would remain elusive without an improvement in the availability of mortgage finance.

The decision to increase the scale of the Bank's operation to print money and buy assets has been widely expected by economists following grim news last month that the economy suffered an even steeper first quarter slump than was thought, plunging by 2.4 per cent, rather than the 1.9 per cent that was previously estimated.

Despite hopes that conditions have since greatly improved, with a slew of indicators pointing to recovery starting to emerge, the case for the Bank to take further action was reinforced this week as manufacturing suffered an unexpected further decline.

Factory output fell by 0.5 per cent in May to a level not seen since 1992. The influential National Institute of Economic and Social Research estimated that this pointed to a further 0.4 per cent drop in GDP in the second quarter.

If confirmed in official data due on July 24, that would dash City hopes that the recession may already have ended last month.

The further expansion of the QE programme will fuel controversy over the policy, however, with critics warning that its results remain disappointing.

Some economists argue that much of the extra cash created under the scheme is being hoarded by banks that remain reluctant to boost lending to businesses and consumers, while another large part of the money if flowing abroad as overseas investors dump holdings of gilts.

The Bank will issue a decision on rates and quantitative easing at midday.

Maybe they'll print a bit extra for us all at MSB?

JonW

[Gareth]

Wonder which company provides the BoE with paper? Must be making a fortune with all this extra cash being printed....

[AndyB]

Genius! Invest in bank-note paper producers!

Did I show you guys my "Fiscal Stimulus Doesn't Work" diagram? No joke, this was made by none other than the governor of the bank of Japan and sent to the US as a warning over their policies.



If you want a laugh (morbid humour), print out an image of the Nikkei historical chart from 1985-2009 and overlay the fiscal stimulus measures taken by the Bank of Japan!

[Pheonix]

For a look at how it goes if you get it really wrong and just keep on printing them banknotes-
Yep, thats 300 quadrillion zimbabwean dollars to the USD. The government over in Zimbabwe even tried to make inflation illegal for a period. Maybe they should do that over here too....

[Gareth]

Wow! It probably costs them more to print the money than it's worth, so they print some more to pay the printers, who want more money so they print some more money.............

[JonW]

Bank halts £200bn stimulus scheme

The Bank of England has decided against further quantitative easing (QE), the policy designed to stimulate growth in the UK economy.

Under QE, the Bank has pumped new money into the economy by buying assets such as government bonds, as a way to boost lending by commercial banks.

Last week, it revealed it had spent all of the £200bn put aside for QE.

The Bank also kept interest rates on hold at a record low 0.5% for the 11th consecutive month.

While halting QE, the Bank said the £200bn already injected into the economy through the programme would "continue to impart a substantial monetary stimulus to the economy for some time to come".

But it did not close the door on further spending.

"[The Bank] will continue to monitor the appropriate scale of the asset purchase programme and further purchases would be made should the outlook warrant them."

Weak growth

Analysts had expected rates to remain unchanged.

The decision to keep rates on hold comes despite official figures showing that UK consumer prices rose in December by 2.9%, their fastest annual pace for nine months and above the Bank's 2% target.

The Bank said in a statement that it would "continue to monitor the appropriate scale of the asset purchase programme" and further purchases would be made if needed.

Bank Governor Mervyn King warned last month inflation was "likely to rise to over 3% for a while", and could go even higher if energy prices and indirect taxes were to increase further, but added that it "should return to target in the medium term".

Although the UK did officially come out of recession in the fourth quarter of 2009 - ending six consecutive quarters of economic decline - the growth was just 0.1%, much less than expected.

For that reason, most analysts expect rates to stay at 0.5% until at least the second half of 2010 for fear of the UK falling back into recession.

From the Beeb

JonW

[dxrules44]

Could we see a double dip recession? What do you guys think?

I havent heard any big new of job creation, instead i have heard the us economy expanding and jobless claims rising.

Portugal and greece badly affected, damaging the ECB? I still need to research more thoroughly but because of recent volatility in the markets, i will tighten up my stop losses....

[Pheonix]

Dunno. Personally, I'll be going for an L-shape recession as opposed to a W-shape double dip. Question is whether or not we see another L, IMHO. We've got a few long years of little or stagnant growth as a country from now on.

We've got some shaky days ahead this week, could well be make or break time, but having said all that, much the same thing has been said these last 6 months that I've been in the market. I think that too many people are expecting it for it not to happen though. crowd dynamics drive the market, so if it is expected, it'll generally happen.

Bottom line, is that nothing has really fundamentally changed. Nothing that caused the crash in the first place has been rectified, as always, regulators are still playing catch up to the banks, as they have been for decades.

Sure, things are being discussed, and new regulations are coming in, but equally, the government has put a huge cushion to try to lessen the blow in the form of QE. It'll still hit though, particularly now we've come to the end of printing money. We've got to face the fact that we're now running a huge deficit which we cannot afford, like most of the western world. Current markets don't consider it, IMHO. That debt will have to be paid for, one way or another, and plain and simple GDP growth of the UK cannot afford it at the moment. We're running something like an 11% deficit with 0.5% growth. We're going to see cuts, and the pain of this recession is largely yet to come in my opinion.

This is purely my view of the situation as it stands, I don't pretend to know enough about it all to be able to validate all of my views with any amount of certainty, but the gist of it makes sense to me, so I thought I'd share it with you. Bear in mind I've only been in this game for 9 months though. I've still got a lot to learn.

[JonW]

King hints at QE resumption

Tue 23 Feb 2010

LONDON (SHARECAST) - Bank of England governor Mervyn King has hinted the UK's quantitative easing programme may restart again if the UK economy takes another downturn.

This month's meeting of the Bank's Monetary Policy Committee paused the £200bn programme, but King indicated he is concerned about the weakness of the global economy and its impact on UK exports.

"My particular concerns at present derive from the state of the world economy. Recovery in our largest export market -- the euro area -- appears to have stalled," he said.

"This nascent recovery is fragile," he said. "The tensions that underlay the build-up of large world imbalances have not been resolved," he added.

King told the Treasury Select Committee that ratings agencies were also looking for a “detailed explanation� of how Britain intended to reduce its budget deficit.

Explaining his decision to keep the QE programme on hold, David Miles, an external MPC member, told the committee that the decision on whether to increase QE in February had been for him, very finely balanced - the Committee voted 9-0 in favour of keeping it on hold.

"It's a decision that is finely balanced, it's one we'll come back to in future meetings," he said.
LINK

JonW