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Surprise As Bank Stalls On Its 'printing Money' Policy

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Times article here

The Bank of England rattled markets yesterday with a surprise decision not to expand its £125 billion scheme to jump-start growth by “printing moneyâ€. The unexpected verdict sparked speculation that it could halt its massive purchases of bonds used to pump extra cash into the economy.

The decision confounded predictions that the Bank would respond to renewed signs of economic weakness by increasing its purchases of government and corporate bonds under its contentious quantitative easing (QE) scheme by another £25 billion, to the £150 billion limit authorised by the Chancellor.

Instead, the Bank’s Monetary Policy Committee (MPC) put QE on hold as it also pegged interest rates for a fourth month at 0.5 per cent.

The Bank said that it would scale back weekly purchases of government bonds (gilts) to £4.5 billion, from £6.5 billion, with the last of its planned spending to be completed by July 29. So far, the Bank has bought £110 billion in gilts, and about £3 billion in corporate bonds and commercial paper.

The MPC declared that it would review the scale of QE at its next meeting on August 5 and 6, when the Bank will have completed its latest quarterly forecasts of economic prospects.

But the decision led some economists to predict that it could now close down the radical drive to breathe life into the economy. Ross Walker, of RBS Global Markets, said: “This decision sends a very clear signal that that is probably it.â€

Speculation that QE might soon end triggered a sharp sell-off in the gilts market, driving benchmark ten-year gilt yields to levels of almost 3.80 per cent, from 3.60 per cent just before the Bank’s announcement.

The pound was also pushed sharply higher, climbing by more than 2 cents against the dollar to close at 1.6235.

The MPC’s move came against a backdrop of growing criticism from parts of the City over the effectiveness of QE, which is seen by some economists as having had only limited success so far in easing stressed credit conditions, boosting lending to businesses and consumers, and restraining market interest rates.

Some economists argue that much of the extra cash created under the scheme is being hoarded by banks that remain reluctant to boost lending to businesses and consumers, while another large part of the money is flowing abroad as overseas investors dump holdings of gilts.

However, the Bank still remains under intense pressure to take more action after recent setbacks to recovery hopes, with manufacturing hit by a relapse in this week’s May figures Business groups attacked the MPC’s decision and said that, after only five months, it was still too soon to reach a firm judgment over its effectiveness.

Not all economists believe that the Bank will call a halt to QE next month. Roger Bootle, economic adviser to Deloitte, the accountant, said that the MPC’s verdict should not be over-interpreted and that it was likely only to be taking stock.

A Reuters poll showed that 35 out of 56 economists believe QE will at least be increased to the present £150 billion maximum. Interest rates are expected to stay on hold until at least next summer.

Hmmm? Maybe a tacit acknowledgement of their intention not to stoke the potential fires of inflation too much and that interest rates will be heading north in the not too distant future?

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Times article here

Hmmm? Maybe a tacit acknowledgement of their intention not to stoke the potential fires of inflation too much and that interest rates will be heading north in the not too distant future?

No!

It is called brinksmanship. Central bankers live by it. They have to be all things to all people, you included, lest the game end abruptly. They have fooled you into believing they might behave responsibly and not print money for the benefit of themselves, their friends and all the filthy thieving politicians with their noses in this trough.

Edited by Where is my pen?

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