Critics hit out at new £50bn QE
THE BANK of England will print a further £50bn to buy government bonds, taking the total level of quantitative easing (QE) to £325bn, the Monetary Policy Committee (MPC) said yesterday, in an effort to keep interest rates low and support growth.
But some economists expressed doubts over the scheme’s impact, arguing variously that the Bank is underestimating inflation, mis-diagnosing the economy’s problems, and that monetary policy alone is not enough.
The Bank surprised markets by tweaking the maturity of the bonds it buys downwards – a sign it is struggling to buy more 10- to 15-year gilts as it owns so much of the market.
This should “reduce the risk of undesirable frictions” in the gilt market “arising from the concentration of the Bank’s holdings of gilts in certain maturity sectors,” the MPC said.
As a result the yield on five-year bonds fell slightly and the interest rate on 30-year gilts rose 11.4 basis points.
The pound rose around half a US cent before the announcement, before easing to end broadly flat.
However, analysts are doubtful this can help in the longer-term.
RBC Capital Markets’ Sam Hill said: “This has just transferred pressure to the three- to seven-year sector, and there is not much more capacity available in the short-term end of the market than the medium term part.”