KPMG: QE to resume “sooner rather than later”

by Richard Crump

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11 May 2012

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Bank of England

THE BANK OF ENGLAND Monetary Policy Committee has maintained interest rates at a record low of 0.5% and is not extending its quantitative easing policy.

In March, inflation rose to 3.5% from 3.4% in February and has been running above the Bank's target rate of 2%.

"This was no great surprise - after all with conflicting evidence, the wisest course of action is often to do nothing. The Committee faced a tough dilemma with GDP coming in weaker than expected and inflation higher," said KPMG chief economist, Andrew Smith.

The MPC decided to not to extend its £325bn asset purchase programme announced in February, but with the economy back in recession Smith expects the Bank will have to extend the programme.

"QE is no silver bullet, but the probability of continued weak growth (at best) and the expectation that inflation will resume its downward trend again shortly, is likely to lead the Committee to conclude that more stimulus is worth a shot, and sooner rather than later," said Smith.

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