Thursday, 6 August 2009

Bank of England ready to print the next £50bn

Today the BoE has announced that (i) it will be keeping the base rate at its record low of 0.5%, and (ii) it wants to print another £50bn for its quantitative easing programme. Alistair Darling authorised the £50bn by return of fax, amusingly referring to it as from "central bank reserves" as though the BoE really had fifty billion pounds in the vaults waiting to be spent on gilts. Maybe AD doesn't appreciate that Melvyn King (BoE governor) just prints new money whenever he's allowed.

So the total QE is £175bn, of which £125bn has already been spent.

The effects of QE so far have been a booming stock market, and even a slight rally in house prices - up 1.1% in July according to the Halifax.

The government seems determined to get a mini-boom going in time for the election. That fact that they are taking on debt that will require several generations to repay doesn't seem to concern them.

Needless to say, on news of the second QE tranche the FTSE100 jerked up but sterling fell sharply against the Euro, dollar and CHF. A sterling crisis is really the second shoe that everyone is waiting to drop.

Links:
BBC
Guardian, with comments
MKs letter to AD
AD's instantaneous reply to MK
BoE announcement

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