How likely is QE2 in the UK?

23rd November 2010

When it comes it economic policy at least, there is a temptation to think that where the US goes, the UK must follow. Therefore there has been significant speculation about another round of quantitative easing in the UK since the US launched its second programme this month.

Yet, does the economic situation really merit it? Inflation remains stubbornly high. Economic growth has surprised on the upside and the UK has its austerity plan firmly in place. Certainly the Bank of England Monetary Policy Committee still seems split on the issue, as reported here on the BBC

This article on Citywire demonstrates the level of support for a resumption in quantitative easing. Every economist interviewed says that inflation remains under control and therefore the Bank of England has headroom to resume quantitative easing.

But this view is far from universal. For example, John Anderson, head of credit at Gartmore, says: "I don't think they will repeat quantitative easing in the UK. There is enough growth and enough inflation to hold off."

Simon Ward, chief economist at Henderson, is also sceptical: "Policymakers in the UK are constrained by high inflation. It makes it difficult to launch a programme of quantitative easing.

"Unless the economy takes a dive, I can't see how they will justify it."

Keith Wade, chief economist at Schroders, says that the recent inflation figures were "a surprise" and he believes inflation will be above 3% for much of next year, in spite of deflationary pressures such as public sector job cuts.

Keeping options open

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