BoE extends QE programme by £25bln in November
5th November 2009
As expected, the Bank of England held borrowing costs steady at 0.50% in November for an eighth consecutive month, but policymakers voted to extend its QE programme by £25 billion to £200 billion, as the fight against the deepest downturn in decades steps up a gear.
Until two weeks ago, most analysts had been expecting no further expansion of the QE programme as rebounding equity markets, rising house prices and an improvement in consumer morale reinforced expectations that that conditions were starting to perk up. The MPC had also given strong hints that they were happy with the impact of QE and implied that there would at least be a pause in the programme. However, confirmation of a record sixth consecutive quarterly contraction in Q3 prompted speculation that there would be an extension announced today of up to £50 billion.
It appears that the MPC have taken the middle ground, responding to that unexpectedly poor Q3 GDP figure but taking into account this week’s data which, once again, presented a much more upbeat reading of the UK economy. Surveys of the British manufacturing and service sectors indicated that activity was growing in October at its fastest rate in two years, while this morning’s official industrial output figures posted their strongest monthly rise since July 2002. The BoE also commented that they expected inflation to rise sharply above the 2% target in the short-term.
This, and the market’s relief that the QE was not larger, prompted an immediate spike higher in sterling to GBP/USD 1.66 and GBP/EUR to 1.1190.