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BoE stops printing money
The Monetary Policy Committee disappointed bond investors yesterday as it signalled an end to its quantitative easing
In language which led to a certain amount of confusion, the Bank of England yesterday announced that it would not allocate the final £25bn of its current £150bn quantitative easing programme. The move worried the markets and led to further concerns over the future of the Bank’s spending plans.
The MPC said of the move: "The committee also voted to continue with its programme of asset purchases totalling £125bn financed by the issuance of central bank reserves. The committee expects that the announced programme will take another month to complete. The committee will review the scale of the programme again at its August meeting, alongside its latest inflation projections."
As a result of the statement the bond market was sold off heavily, with the 10-year UK government bond, or gilt, yield jumping by 19 basis points from 3.60 per cent to 3.79 per cent. Sterling moved sharply stronger after the moves, with the pound gaining 1.1 per cent against the dollar and moving up against other currencies.
Analysts said that the confusion highlighted the difficulties the Bank will have when the time comes for it to stop creating more money to pump into the economy. It also shows how fragile confidence in the state of the economy still is. The announcement came as the BoE left interest rates unchanged at their low of 0.5 per cent.
WHAT THEY ARE SAYING:Peter Dixon, economist at Commerzbank, in the FT: "[The] announcement that the BoE will not seek an expansion of the asset purchase programme was perhaps the least expected of the available options. By opting for the status quo ... the Bank has raised the stakes in August when any announcement will assume even greater significance than might otherwise have been the case."
Robert Barrie, managing director of European Economics at Credit Suisse, in the Independent: "The MPC continues to make the straightforward more complicated than it need be. The decision not to go ahead at this point with the remaining £25bn suggests that maybe it has changed its mind in some way. The decision not to write asking for more suggests the same. The suggestion in the statement that these decisions have not been taken but deferred until next month goes the other way." ·
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It is time to stop propping up the banks and let the normal activity resume. Profligate people and banks need to learn to save before buying and and not to burden themselves with heavy borrowing.