Thursday October 7, 2010 - 02:08:30 GMT
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Bank of England Considers Pumping New Money in U.K. Economy
Bank of England monetary policymakers are currently meeting
to decide whether to pump more new money into the fragile U.K. economy. This decision comes
on the heels of fresh stimulus measures taken by the Bank of Japan to bolster
its weak economy.
On Thursday the BoE is expected to hold its key benchmark
lending rate at a record-low 0.50 percent after a two-day monetary policy
Last week the British Pound fell sharply after policymaker Adam
Posen said the central bank should consider revving up the printing press and
injecting more money into the economy. He further warned that a slow response
by the central bank could curtail growth and push down deflation.
The BoEâ€™s last foray into the world of quantitative easing
ended in February. Prior to the expiration, the central bank through its asset
buyback program created close to $317 of new money by purchasing government
bonds and high-quality private sector assets.
Given the financial risks facing the U.K. economy at this time, the
BoEâ€™s Monetary Policy Committee is revisiting the policy this week in an effort
to project growth in the economy with or without the stimulus.
Traders have been warning since the election in May that the
possibility of QE would have to be re-evaluated at a future date since the new
government implemented austerity measures that could slow down the economyâ€™s
Traders fear that the new round of austerity measures, due
from the government in two weeks, could drive the economy toward a double-dip
recession. Some are forecasting a slash in spending by as much as 25 percent.
Although there are signs the economic recovery is fading,
the deciding factor for the MPC will likely be the inflation figure. If
inflation continues to remain strong then the BoE will not have to act as
swiftly, and the current policy will be left on hold. Any weakness in growth as
measured by inflation is likely to mean that more quantitative easing at the
end of the year or the start of 2011.
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