'QE2' could take state support to £400bn

DETERIORATING economic data could force Bank of England Governor Mervyn King to double quantitative easing to £400 billion, one bearish City economist warned yesterday.

Stuart Thomson, chief economist at Ignis Asset Management, said a worsening outlook could force King to seriously accelerate the central bank's support to the economy - although any move might not happen before February because of inflationary concerns.

While a growing number of economists have raised the possibility of so-called "QE2" in recent weeks, Thomson is among the first to place an estimate on how much extra will need to be pumped into the economy.

He believes the Bank's monetary policy committee will have to ramp up the money supply to 400bn amid worsening economic figures and also to compensate for the ending in April of its special liquidity scheme (SLS).

The Bank introduced the SLS in 2008 when markets were cash-starved. It allowed financial institutions to swap high quality mortgage-backed and other securities for more easily tradeable assets.

"We believe that QE2 will amount to at least 400bn," Thomson said.