More QE could be on the cards - ITEM Club responds to today's interest rate decision

4 April 2013

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Nida Ali, economic advisor to the EY ITEM Club, comments on today’s interest rate decision:

  • The Bank’s decision to sit tight on monetary policy in April is disappointing
  • Fear of higher inflation due to a weakening of sterling appears to be the key factor holding the MPC back
  • But in our view, more QE will probably be authorised in the coming months

“There have been a range of weak economic indicators since last month’s MPC meeting, particularly for the manufacturing sector. Chances of GDP falling again in Q1 remain high, and so it was disappointing that the Bank once again chose to sit tight on monetary policy.
“The fear that further weakening of the pound will increase inflationary pressures seems to be holding the MPC back. But the economic environment is very fragile. Coupled with the Chancellor’s Budget statement, which gave the green light to the Bank of England to let inflation stay above target for longer, it suggests that we are likely to see further asset purchases in the coming months.
“We are strongly in favour of looser policy. The net effect of monetary stimulus is likely to be positive for the overall economy.”