MPC’s Broadbent hints at further round of QE

Monetary policy committee (MPC) member Ben Broadbent said a weak global economy would press on UK inflation and, hinting that interest rates also looked set to stay at historic lows, he said: “Most importantly for policy today, the international environment is clearly disinflationary.

“Slow growth in the United States, the sovereign debt crisis in the eurozone and its knock‑on effects on the cost of finance for UK and European banks all threaten a further tightening in retail credit and a further slowing in domestic activity.” UK inflation hit 4.5 per cent in August.

However, after recent warnings from the International Monetary Fund and a slew of data that suggested the UK recovery is slowing, the BoE indicated it may inject more stimulus into the economy via quantitative easing (QE) – electronically printing new money to buy assets to allow more funds for banks to lend to the economy.

Broadbent said the pound was likely to remain weak for some time, but said the BoE’s monetary policy, with rates at 0.5 per cent, was not to blame.

He said if the bank had not allowed inflation to rise above its target, unemployment would have been even higher.

Howard Archer, chief UK economist at IHS Gobal Insight, said Broadbent’s speech was broadly supportive of “mounting expectations” that the BoE will announce a further £50 billion of QE by November to £250bn.

However, he added: “It is very possible that the bank could act at the conclusion of the 5-6 October MPC meeting if UK data over the next couple of weeks show further weakness and the global economic environment fails to show any signs of improvement”.

MARTIN FLANAGAN