The British rate decision brought no surprises – the rate stayed unchanged at 0.5%, and so did the Quantitative Easing program. The 175 billion pound plan isn’t changing. Not yet. But with money running out of this program by the end of the month, and with BoE Governor King wanting an expansion of the program, we got hints about the next rate decision.
In the official statement by the BoE, they refer to the Quantitative Easing program (also known as Asset Purchase Facility):
The Committee expects the announced programme to take another month to complete. The scale of the programme will be kept under review.
In the note to editors, they add that 162 billion pounds have already been spent.
GBP/USD shook after the decision but didn’t fall. It kept the small gains from yesterday and this morning and is now trading at 1.6060.
According to the recent NIESR GDP estimate, the British economy didn’t grow in the third quarter that just ended. While this isn’t the official figure, the economic recovery is quite slow in the UK. Prices aren’t picking up. Other countries have shown much stronger figures than the UK. This is expressed in the forex markets as well. The Pound is beaten by all the important currencies.
Mervyn King, governor of the Bank of England, already wanted an expansion of the QE program last month, when he saw no fears of inflation. He didn’t get enough backing from other members. Here’s the quote from Bloomberg:
King had favored a bigger increase in the program to 200 billion pounds as the bank’s predictions showed inflation may not return to the 2 percent target in two years. He and policy maker David Miles, who had sided with King, opted for consensus on the nine-member panel at the September meeting while saying a bigger increase could still be justified.
We’ll see the minutes from today’s meeting on October 21st. Were other senior bankers convinced by King?
With money running out of the current program, and no recovery in sight, King’s opinion could gain more support in the next meeting at the beginning of November.
An expansion of the program could hurt the Pound. More money in circulation means a devaluation of the Pound.
Today we got hints about the BoE’s policy in the near future. These hints are bad for the British Pound.