QE (Quite Enough?) Update & Competition Winner

Earlier today the Bank of England announced that along with keeping the bank rate at 0.5% it is to increase the QE program by a further £25bn over the next 3 months. Whilst an increase was somewhat expected by the market gilts have sold off, the yield on the 3 3/4 2019 rose to 4% earlier as it seems to have expected a larger commitment. Even though we had a GDP print of -0.4% recently it seems the Bank is laying the groundwork for stepping away from the bond purchases. Considering they have bought back £175bn worth of gilts since March and now they are planning to do £25bn over the next 3 months it definitely feels like they are turning down the dial. By my basic calculations the rate of increase has reduced by roughly 70% (originally they were buying £25bn per month and now that has fallen to £8bn per month). Hopefully this reduction will strike the right balance between helping the economy get back on its feet and allowing the Bank to hit its inflation target. We should get further colour on their thinking when the quarterly inflation report is released on the 11th.

We had a number of correct entries to our QE prediction competition so in the interest of fairness we have drawn a name out of a hat. The winner is Peter Lowe at Smith & Williamson. Congratulations and we hope you enjoy the book.

Discuss Article

  1. Anonymous says:

    What are the implications for gilt prices if we see a hung parliament result at the next election. Given issuance and QE exit pressure on prices in 2010 I'm trying to be intuitive on this point but failing!

    Your thoughts appreciated

    Posted on: 10/11/09 | 12:00 am
  2. Anonymous says:

    Hugely negative to my mind as you have to factor in a large 'uncertainty premium'.

    Posted on: 10/11/09 | 12:00 am
  3. Gordon Harding says:

    Thanks for your question. A number of clients have been asking a similar thing recently. We actually discuss the implications of different election outcomes for the bond markets in a recent teleconference that we gave to clients and posted on this blog. The question is asked at 33mins and 15 seconds in. Click here.

    Posted on: 13/11/09 | 12:00 am

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