The Bank of England will have to consider the gathering evidence that another recession is on the cards before deciding whether to begin another round of quantitative easing (QE) to support the UK economy this week.
Fears of another recession mean it is “touch and go” whether the Bank will opt for another dose of emergency measures, after a collapse in consumer confidence, the Government’s budget cuts and the eurozone debt crisis hurt growth.
The Bank’s Monetary Policy Committee (MPC) is widely believed to be on the verge of sanctioning another round of QE, or electronic money printing, with its meetings this week or next month thought to be the most likely points for the measure to be approved.
Should the Bank decide to alter its policy, it will be the first change it has made since raising the level of QE from £25bn to £200bn, or 14 per cent of GDP, in November 2009.
Only one of the MPC’s nine members voted for more QE when the committee last met, but most of the committee agreed that it was increasingly likely such a measure would need to be considered at some point.
Since the last meeting there has been signs the economic slowdown in the West could be spreading to China and other emerging economies, while speculation has increased that Greece will default. Meanwhile, the FTSE 100 index has endured its worst quarter for almost a decade.
IHS Global Insight chief economist Howard Archer believes it is “touch and go” whether more QE will be sanctioned on Thursday, or whether the MPC will hold off for a month until they can examine the third quarter GDP figures and its quarterly inflation report.
Several members of the committee have made ‘dovish’ comments about QE in recent days, adding weight to the theory that the measure will be approved.
Investec Securities economist Philip Shaw thinks the committee will raise its stock of asset purchases by £50bn this week. The eurozone debt crisis could result in a supply of credit being “choked off” and exports could be hit, so Shaw believes the situation “calls for action now rather than later”.
Should the MPC opt to return to QE it will be a remarkable change of position from just three months ago, when two members wanted to increase interest rates from 0.5 per cent to beat down inflation.