Bank of England MPC Keeps Interest Rate Unchanged, Launches QE 2

The Bank of England Monetary Policy Committee just decided to keep Bank Rate unchanged at 0.5%.  And here’s the important bit: it raises the target size of the asset purchase programme from £200 billion to £275 billion, essentially launching the second round of quantitative easing.

Despite inflation at an elevated 4.5% level, the Bank saw the main cause as the rise of VAT early this year.  In the previous inflation report, the Bank Governor Mervyn King also saw inflation in the UK largely import inflation.  The Bank of England sees that the deterioration of economic outlook would make inflation undershoot the 2% target in medium term. 

Together with the strains in bank funding markets and financial markets in general as a result of the on-going European debt crisis, the Bank of England increase the size of the asset purchase programme.  The £75 billion increase of asset purchase programme will be carried out over the next four months.

Of course, we know that quantitative easing will not work.  So… it probably doesn’t matter.  The pound sterling, however, is being crushed immediately after the announcement, falling by more 150 pips against the US dollar.

In case you don’t know how quantitative easing works (theoretically?), the Bank of England has also kindly provided a video to explain how it works.

For more news and analysis, visit Also sprach Analyst. Follow us on Twitter and Facebook.

Get our daily email update FOR FREE!

Like this? Share it with your friends with the buttons below!

You may also like:

Bank of England MPC maintains interest rate and QE unchangedBank of England MPC maintains interest rate and asset purchase programme unchangedChart: Who is funding the US budget deficitWillem Buiter: how about abolish currency COMPLETELY?Bank of England MPC keeps interest rate unchanged, expands QE to £325 billion

About Zarathustra

Zarathustra: Founder and Managing Editor of Also sprach Analyst. Once an analyst, now an investor and entrepreneur. Based in Hong Kong, but Londoner at heart.