Pension experts welcome Bank of England’s vote against quantitative easing

7th March 2013

The pound has risen against the dollar as the Bank of England’s Monetary Policy Committee held interest rates and decided against more quantitative easing.

The decision not to embark on more QE has been welcomed by pension experts who argues that pensioners have been penalised enough as a result of the policy.

Trading this morning suggested that the foreign exchange market was pricing in the risk of more quantitative easing. The previous Monetary Policy Committee minutes suggested increasing support for the move.

The pound rose around half a percent against both the euro and the dollar. Six MPC members voted against QE with four voting for an increase of £25bn which would have taken the amount to £400bn in total. Bank of Governor Mervyn King was one of those in favour, the second meeting in a row at which he has advocated the move.

Foreign exchange broker HiFX says that King may be losing some of his influence as he approaches the end of his tenure.

Andy Scott, premier account manager HiFX says: “Despite Mervyn King and two other members voting in favour of an increase of £25bn in the asset purchase programme last month, they failed to convince enough of the rest of the monetary policy committee that such a move was necessary. With King coming to the end of his tenure in June, it could be that he has lost some credibility within the monetary policy as previously when he’d been out voted at one meeting, he achieved a majority at the following meeting.

The broker also suggests the committee majority may opted against further QE because of recent big falls in the value of sterling.

“I suspect one of the key reasons the majority also didn’t vote for an increase is due to the fall in Sterling of around 7 per cent against its major counterparts this year. Whilst a lot has been made of the potential positive impact a weaker currency can have on exports, we’ve also seen the impact that can have on inflation due to imports such as oil and gas which are priced in US Dollars. In 2011, inflation was running at around 4.5 per cent year on year,  hitting a 3-year high of 5.2 per cent when the economy was barely growing. This proved to be a massive drag on consumers spending power as energy costs soared and wages failed to keep up with price rises leaving the majority of households worse off. With a number of major investors and hedge funds still betting against Sterling, perhaps they’re currently more concerned about the risk of additional Q.E. being greater than the reward.”

Pension firm Prudential says the decision not to expand QE will come as relief to many pensioners.

Vince Smith-Hughes, retirement expert at Prudential, says: “The MPC’s decision not to expand the current quantitative easing programme is good news for the UK’s retired population who have already seen their expected incomes fall and living costs spiral in recent years.

“Our Class of 2013 study shows that expected retirement incomes are currently at a six-year low, with those retiring in 2013 expecting an average of £15,300 per year, which is £3,400 lower than in 2008.

“People in retirement are also highly susceptible to rising living costs, as their spending habits leave them subject to a higher rate of inflation than most. Inflation has already caused prices to rise by roughly 22.7 per cent since 2008, so further rises would be extremely challenging for retired households’ budgets. Further quantitative easing may have exacerbated the already challenging financial climate facing UK retirees, so the decision against expansion is a welcome one from this perspective.”




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