By TraderVox.com
On February 9 at midday in London, the bank of England will release its conclusion on what new interest rates should be and also whether they will implement their QE program. We highly expect interest rates to remain unchanged but many analysts foresee an increase in the QE program from 275 Billion pounds to 325 Billion pounds.
Although the UK has seen recent positive data being released in the past weeks, the UK economy still remains poor and therefore sufficient reason to go in for more QE. We examine reasons why?
1. Contraction of UK economy in fourth quarter of 2011.
The UK’s economy contracted 0.2% during the final quarter of 2011.This was worse than the anticipated contraction of 0.4%.This contraction brought about renewed ideas of a recession. The BOE will be keen to avoid another contraction as it will not speak well, they will therefore be keen on more QE.
2. The former QE will soon come to an end.
The BOE added to their QE program last October and with the program set to expire this month and a new program may be put into place in order to avoid changing interest rates.
3. Inflation dropping.
BOE bosses anticipated that inflation will surely drop in the nearest future. And true to their anticipation UK inflation has dropped. The Annual CPI figure for December showed a drop from 4.8% in November to 4.2% in December, which is a 6-month low. BOE experts think this was as a result of retailers having to cut prices because of the lower consumer demand. The situation is expected to go on for a few more months.
4. BOE January meeting.
After the BOE policy meeting in January, several members of its monetary policy committee declared their intentions to vote for more asset purchases.
With all the above reasons in mind, we can expect more QE, but the statements that accompany the QE are going to be a key factor. If the new QE program comes with an alert from the BOE that more QE is due, this does not speak will of the UK economy and the GBP is sure to crash. One thing that is sure is that this announcement shall move the market.
Article provided by TraderVox.com
