The Bank of England (BoE) announced today its intention to take the bond-buying programme to £375 billion. The BoE’s Monetary Policy Committee also left the interest rate unchanged at a rock bottom 0.5%, where it has sat for more than three years.
The BoE cites slowing growth in export markets and a depressed economy for the increase in QE.
Weak data was also behind the boost. Wednesday’s purchasing managers’ index for the service sector fell to 51.3, down from 53.3 in May.
Azad Zangana, European economist at Schroders, believes the additional £50 billion will “do little” to stimulate the economy.
“Gilt yields are close to record lows, leaving little room for a further discount to feed through to banks and households. In addition, banks are still under tremendous pressure to deleverage, restricting the amount of lending they are prepared to do.
Moreover, because of the huge uncertainty caused by the eurozone crisis, there is little appetite for businesses to take new risk and invest in the economy,” he says.
Zangana adds that he expects the UK economy to “stagnate at best” over the next 18 months, believing that more QE will be announced later this year.
In addition, more QE means annuity rates are likely to fall further. Andrew Tully, technical director at MGM Advantage, comments: “This latest round of quantitative easing, hot on the heels of the £50 billion announced in February, will further impact gilt yields and will therefore drive down annuity prices.”
Meanwhile, the European Central Bank cut interest rates to a record low of 0.75%.