Further £100bn QE to come, says economist

IHS Global Insight’s chief European and UK economist, Dr. Howard Archer, said that the MPC will likely increase QE by another £50bn next week, while “a larger portion of £75bn cannot be ruled out”.

In addition, the MPC will likely approve a further £50bn of stimulus in Q2, with Howard pointing to May as the probable month.

This would take the Bank’s asset purchasing programme to £375bn, reflecting the belief that the economy will struggle to show sustainable growth in H1.

Howard said: “Last October’s £75b of QE was due to be spent by early February and, with GDP contracting 0.2% in the fourth quarter of 2011 and the economy currently still facing a highly challenging environment despite an apparent pick-up in services and manufacturing in January, there are compelling reasons for the Bank of England to administer further stimulus for the economy.”

The recent sharp fall in inflation and muted wage growth has increased the scope of the BoE to provide additional stimulus without undermining its credibility, Howard said.

He added: “Another sharp fall in consumer price inflation will undoubtedly occur in January as the impact of last year’s VAT hike from 17.5% to 20.0% drops out, and it currently looks highly possible that inflation will be down to the Bank of England’s targeted 2.0% level by the end of this year.”

In addition, base rate is unlikely to move before the second half of 2013, Howard said, with it looking "eminently possible" that there will be no move in interest rates until 2014.