Is a fresh round of QE on the cards as early as tomorrow?

7th October 2010

Simon Ward, chief economist at Henderson Global Investors says there is "an outside chance" that the Bank of England's Monetary Policy Committee will surprise markets with a further round of QE tomorrow.

Ward says it's possible, not least because Adam Posen's decision to speak out on the need for more QE last week came just ahead of the start of the October deliberations, suggesting that he is confident of support from other MPC members. Ward says it shows he wanted "to exert pressure on waverers".

He also points out that eight of the nine members of the Sunday Times Shadow MPC  – which has often mirrored MPC thinking – favour more QE, although, he says "two of these individuals, bizarrely, also voted for a half-point rate hike this month".

Of course, it's not a done deal. Ward says the key reason for expecting the MPC to hold back on a second round for the time being is that short-term inflation prospects have deteriorated further.

"A combination of high VAT pass-through, rising food and gas costs and renewed upward pressure on petrol prices could push the headline CPI rate up towards 4% over coming months," Ward explains.

"This increases the risk that more QE would boost inflationary expectations, a consideration that may weigh with the majority."

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