Further QE looks unlikely unless bond yields move too high too fast - ITEM Club comments on today's interest rate decision

4 July 2013

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Andrew Goodwin, senior economic advisor to the Ernst & Young ITEM Club, comments on today’s interest rate decision:

  • The recent run of stronger data made this decision a virtual formality
  • The real interest will come in two weeks when we find out how the new Governor voted
  • Further QE looks unlikely unless bond yields move too high too fast

“The run of stronger data has meant that the chances of more QE have been receding by the month. And the very encouraging PMI data from earlier this week had reduced the chances of a July move to almost zero.
 
“The most interesting aspect of the July decision will be the voting pattern. There is a perception that Mark Carney will push for more activist monetary policy, but we do not see a lot of evidence to back this up and would not be surprised if he voted with the majority. And given the strength of the recent data, we could easily see one of the two members who have previously voted for more QE moving back across the table to re-join the majority.
 
“As things stand, the only way that we can see further QE happening is if the Bank decides that gilt yields are rising too quickly and need to be reined in.”