More QE the Only Option, Says KPMG Chief Economist

February 14, 2012 /

Commenting on the decision from the Bank of England Monetary Policy Committee to maintain the Bank Rate at 0.5% and increase the size of the Asset Purchase Programme by £50 billion to £325 billion, KPMG Chief Economist, Andrew Smith, said: “While expected, today’s announcement underlines how worried the MPC is. Not deterred by slightly stronger recent data, the committee is clearly concerned about the underlying weakness of the economy.

“Output has been broadly flat for eighteen months and remains some 4% below its pre-recession peak. Slack in the economy should see headline inflation plummet later in the year.

“Like most things in life, QE is probably subject to the law of diminishing returns and additional asset purchases may not be as effective as earlier ones. Nevertheless, a further extension of the programme is likely. With more austerity measures, by way of spending cuts, on the way and interest rates already at a low, there are few other options available to support demand.”

 

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