Get the champagne bottle ready; the UK’s QE2 could launch within weeks. There is no reason for markets to price in the risk of any other outcome after Wednesday’s publication of the minutes of the Bank of England’s September monetary policy committee meeting. The questions now – for bankers and investors alike – concern the timing and extent of the intervention. More pertinently, can more bond buying, meant to stimulate activity by pushing down long-term lending rates, have much effect, either on markets or on the economy?
All nine members favoured keeping the target rate at 0.5 per cent (as many as three favoured a rise just months ago), while most thought it “increasingly probable” that more asset purchases would be warranted “at some point”. This is about as direct a steer as a central bank can ever give. When will that point be reached? Most thought that more of August’s conditions, with a slowing economy and financial stress, would be enough to trigger QE2, and that the decision not to go ahead in September was “finely balanced”. As conditions have worsened since the meeting, QE2 could be imminent; best to brace for it in October.
Coincidentally, the latest public finances report showed government borrowing rising faster than thought; any stimulus for the UK must come from monetary and not fiscal policy.