So the Bank of England has pulled the lever on a second round of Quantitative Easing.
Apparently sluggish economic growth, plus more ominous signs from the eurozone, have persuaded the central bank it can’t wait any longer to print more money. But given the evidence from QE1 –
only a small boost to GDP accompanied by extra inflation – it’s a big gamble.
Mervyn King & the rest of the Monetary Policy Committee clearly believe that more money in the system is what’s needed to kick-start growth. But even they admit that QE1 didn’t live up to expectations, so why should QE2? In the meantime, quantitative easing as an instrument gets ever more blunt, so it’s questionable whether even the £75 billion that the central bank is now pumping in will have that great a stimulatory effect. Citi’s Michael Saunders predicts they’ll end up going up to £300 billion, on top of the £200 billion of QE1.
Meanwhile, the extra liquidity will serve to drive up already target-busting inflation, further discouraging household spending.
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