The Bank of England (BoE) has decided to extend its quantitative easing (QE) programme by a further £25bn in an effort to spur economic growth following Britain’s dismal third quarter gross domestic product (GDP) figure. This conformed to market forecasts, highlighting the persisting fragility within the UK economy. However, there were some participants that expected an even larger expansion of £50bn.
Duncan Higgins, senior analyst at Caxton FX, said: “We are not expecting this news to weigh too heavily on the pound in the short term, as this extension had already been priced into the market. Indeed, in not extending QE as far as some had anticipated the pound should find slight relief, with the BoE showing more confidence in the economy than the more bearish market participants.”
He added: “However, in extending their asset purchase scheme and thereby loosening their monetary policy further, the BoE has confirmed that an upward interest rate movement is still a long way off. This could discourage investment. In the medium term, we feel the pound will continue to make steady gains, particularly as UK economic data is beginning to reveal more positive signs. This further stimulus, due to run out in February, could now mark an end to the bank’s asset purchase programme.”
The pound jumped up to US$1.6636 following the announcement and is holding steady against the euro, currently trading around €1.1150.
At the announcement, the BoE decided to once again keep its base interest rate at 0.50%. The European Central Bank (ECB) followed suit, holding its rate at 1.00%. Both decisions were widely anticipated by investors and have not caused any great moves in the foreign exchange (FX) markets.
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