Via Email, Barclays says Monetary Policy Committee set for November QE boost
We are changing our UK monetary policy forecast, and now expect the MPC to announce an expansion of QE at its November meeting. We think additional asset purchases of £75bn will be announced within an overall additional facility of £150bn. As a consequence of this change, we have pushed back our forecast for the first rise in Bank Rate into 2013.Whatever the reason, more QE cannot possibly do the UK any good. It will not help growth or hiring any more than it did in the US, which is to say none.
Why expect more QE?
The case for more QE is relatively straightforward. In the August Inflation Report the MPC’s modal projection was for inflation to fall below target in the medium term, albeit with risks skewed slightly to the upside. This forecast was predicated on expectations of GDP growth of 0.8% q/q in Q3 (factoring in a strong rebound from an erratically depressed Q2) and 0.5% q/q in Q4. Growth in H2 now seems likely to be much weaker than this, however. We are expecting growth of just 0.2% q/q in each of Q3 and Q4, while the MPC itself has said the forward indicators for Q4 suggest growth could be zero. Mechanically, this implies that the degree of spare capacity in the economy will be higher for longer, and that without further monetary easing inflation is more likely to fall substantially below target in the medium term.
This forecast assessment is consistent with the message from the minutes of the September MPC meeting. Most MPC members appear to have become alarmed at the deterioration in the growth outlook, believing that the decision on monetary policy had become “finely balanced” and that it was “increasingly probable” that QE would have to be resumed. The consensus view in September seemed to be that a further deterioration in the outlook would mean that additional QE was warranted. The various demand and confidence indicators published since that meeting suggest the outlook has indeed deteriorated further.
In fact, global QE exacerbated a bubble in the stock market and commodities. Bernanke since abandoned QE in favor of "Operation Twist" and that policy has failed already as well.
Central bankers never learn on their own accord, from others, or from history.
Mike "Mish" Shedlock
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