QE Loses Bets as BOE Prepares to Meet

By TraderVox.com

Tradervox.com (Dublin) – Will BOE extend the bond-buying program or is it going to take a leap of faith by adopting the untested Lending for Funding? This is a question most investors and economists are asking themselves as the Bank of England Monetary Policy meeting draws closer. The asset purchases have lost support, with both BOE deputy governors questioning its effectiveness. The market has also reversed sentiments for additional stimulus as data from UK indicate increased economic growth. If the MPC decides to halt the asset-purchases program, the BOE will be left with the Funding for Lending Scheme as the only official policy tool to spur growth in the kingdom.

According to Steven Bell, the Chief Economist in London at hedge fund GLC Ltd, the situation is quite different from what the UK is used to as the BOE has relied on the asset-purchases program to spur growth. He noted that the search for an alternative is gathering pace. He added that the central bank will be left with the FLS incase the economy reverts. The FLS, which was established three months ago, seeks to encourage financial institutions in the country provide cheap credit to companies and households. This is different from the bond-purchases program which has trickle-down effect on companies and households.

Most of the economists in the market are forecasting that the BOE will leave the rate unchanged at 375 billion pounds. Few economists are forecasting an additional 50 billion pounds and a section of the market predict the central bank to make an additional 25 billion pound. The nine-member committee will meet on Nov. 7-8. The pound has lost 0.2 percent against the dollar to trade at $1.5996.

The minutes of the MPC last meeting showed that some members questioned the impact of another QE. Charlie Bean, one of the BOE’s Deputy Governors, noted that the businesses’ and consumers’ concerns about the economic outlook may undermine the impact of another QE. The second Deputy, Paul Tucker, admitted in September that the asset-purchases program has lost its effectiveness.

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