The Bank of England (BoE) has released minutes from the most recent Monetary Policy Committee (MPC) meeting, revealing a unanimous vote to leave the current programme of quantitative easing (QE) unchanged at €275bn. This outcome was largely expected, according to Richard Driver, currency analyst, Caxton FX.
“I wouldn’t have been surprised to see Adam Posen press for additional QE but on this occasion he was in line with his fellow MPC colleagues. Nonetheless, the MPC noted that the risks of a major eurozone financial collapse is greater than ever, which clearly favours the introduction of further QE down the line,” said Driver.
While inflation dropped fairly sharply in October, Caxton FX expects that the MPC will want to see inflation continue to decline in the coming months before adding further stimulus.
October’s asset-purchases would have run their course by February 2012 but if UK inflation would continue to drop – as the BoE expects it to – and UK growth continues to struggle, which is more than likely, then February seems a strong bet for the next round of QE.
“If the BoE ramps up QE next year, thankfully sterling shouldn’t suffer too much when it does come as QE expectations have already made their mark on the pound. The pound/euro rate is looking healthier today, not based on the MPC’s minutes however, but largely due to some awful industrial orders data out of the eurozone. We feel it’s only a matter of time before the eurozone debt crisis and the imminent eurozone recession sends sterling up above €1.20,” concluded Driver.
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