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