THE TAKEAWAY: BoE stays in line with expectations -> quantitative easing could help growth but carries risk of inflation -> Cable basically unmoved as new measures are priced in
In a move expected by most, the Bank of England today decided to keep its benchmark interest rate at its current low of 0.5%. Additionally, the BoE increased its asset purchase target by £50 billion to £325 billion. The Pound was relatively unaffected in the immediate aftermath of the release, which had already been priced into the market.
Today’s steps are seen as a bid to increase economic growth in the UK, which has been beleaguered by the fallout from the debt crisis on the mainland. Although today’s industrial and manufacturing production numbers were solid, recent data has been overall less than encouraging and a number of key figures in the UK have warned that the nation is at high risk of recession and may have already entered this phase in Q1 2012.
Cable gave a somewhat counterintuitive jump after the release, possibly as market players realized the risk of further quantitative easing has been mitigated for the time being.
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