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Will we see more QE from the Bank of England?

Published 3 April 2012 by

There are murmurs that the UK economy slipped back into recession this year. If it's true, we may see additional pressure on the Bank of England to inject more cash into the economy with a further round of quantitative easing, reports the dailypost.co.uk.

The UK economy shrank by 0.3% in the final quarter of last year. If it shrank in the first quarter of 2012 too, it would mean the economy went back into recession. According to unofficial analysis by the Organisation for Economic Co-operation and Development (OECD), the economy did shrink, by 0.1% in the first quarter of this year.

The Bank of England's Monetary Policy Committee (MPC) is responsible for the quantitative easing (QE) that happens here and at the moment it has already injected £325 billion - £50 billion in February alone. The BoE has also kept interest rates at 0.5% since March 2009.

Two of the MPC's nine members are expected to call for a further £25 billion of QE, but many analysts believe the Bank wouldn't do this until at least next month, as the latest bout of QE has not yet been rolled out completely.

Economists think that economic growth will be sluggish for the next three months and some MPC members believe further quantitative easing would help the economy.

By injecting cash into the monetary system, the Bank hopes to stimulate economic growth. That trickles down to each individual as it become easier to obtain credit and so we're more likely to spend. Businesses should find it easier to borrow money too when there's more cash available, meaning they can grow and create jobs.

However, there is an alternative argument that quantitative easing (sometimes known as 'printing money') actually devalues the money in your pocket, at a time when many people are finding their disposable incomes squeezed already.