Bank of England MPC Keeps Interest Rate Unchanged, Launches QE 26 October, 2011, 19:03. Posted by Zarathustra
Tags: Bank of England, Economy, Quantitative Easing, United Kingdom
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.