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Gradual unwinding of QE likely to be triggered by rate rise to 1.5% – MPC member

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  • 25/09/2018
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A Monetary Policy Committee (MPC) economist said the potential Base Rate trigger which could start the unwinding of Quantitative Easing pumped into the UK’s money supply by the Bank of England has dropped to ‘around 1.5%’.

The timeline for the unwinding of the £375bn of the new money injected into the money supply by the central bank between 2009 and 2012 is hard to predict, but won’t destabilise the economy, said Dr. Gertjan Vlieghe External MPC Member.

In a speech this morning to Imperial College Business School, Vlieghe said: “Unwinding QE need not have a material impact on the shape of the yield curve, or indeed on the economy, if properly communicated and done gradually.”

A Bank Rate of around 2% had originally been suggested as the indicator the economy had reached a firmer footing, but Vlieghe said the central bank has confirmed the reduced estimate last month due to the effectiveness of the Term Funding Scheme, part of the package of measures put in place after the Brexit vote in June 2016.

On the time frame for the QE unwind, he said: “We don’t know exactly when that will be.”

“But the framework is designed to ensure that, should inflationary pressures weaken after that date, the first response would be to cut interest rates.”

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