October 6, 2011

Bank of England Boosts QE

Action comes as slow growth 'threatens recovery'

The Bank of England increased its bond-buying program on Thursday, boosting the ceiling to 275 billion pounds ($421 billion) from 200 billion pounds as it said that slow growth worldwide and European unrest “threaten the U.K. recovery.” It was the first time in nearly two years the members of the Monetary Policy Committee took such an action.

Bloomberg reported that the last time the bank took such an action, clled quantitative easing, was in November 2009; it ended the purchases early the next year. George Osborne, chancellor of the exchequer, has said he will give the go-ahead for any additional stimulus as the U.K. puts the need for recovery ahead of the fight against inflation. Annual consumer price growth came in at double the BoE target, 4.5%, for August. The bank also kept its benchmark interest rate unchanged at a record low of 0.5%.

The move is seen as something of a victory for board member Adam Posen, who has been voting to increase bond purchases for a year. It also comes the day after data show that the U.K. economy experienced minimal growth for the second quarter.

David Tinsley, an economist at BNP Paribas SA and a former Bank of England official, was quoted saying, “The markets are quite volatile, and during such periods it’s right for the bank to take a firm lead to show they’re in charge of policy and will do what they think is right for the economy. You’d be unwise to assume things would settle down over the next few months.”

In a statement, the bank said, “The pace of global expansion has slackened, especially in the U.K.’s main export markets. Vulnerabilities associated with the indebtedness of some euro-area sovereigns and banks have resulted in severe strains in bank funding markets and financial markets more generally. These tensions in the world economy threaten the U.K. recovery.”

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