More QE, anyone? BoE votes 7-2 in favour

Currencies Direct February 22nd 2012 - 2 minute read

For what seems like the first time in an age, something that had nothing to do with Greece was released onto the markets with the minutes from the most recent Bank of England MPC meeting this morning (22 February 2012). The bank, as expected, kept interest rates on hold and this decision was achieved with a 9-0 shutout; implying that the base rate will not be rising anytime in the near future.

This is a slight weakening factor for Sterling because an increase to the interest rate would add to its underlying value. This hardly came as a surprise as an increase in the rate would cripple growth in what are troubled times. The more interesting vote was the 7-2 result over quantitative easing. Seven voted in favour of the £50 billion extra that has been pumped in while two members (David Miles and Adam Posen) wanted £75 billion to be added. This caused most of this morning’s weakness in Sterling as there is potential that more QE could be pushed into the UK economy. The BoE also sees credit remaining tight and looks for global growth to weaken.

I had to mention the Greek saga which seems to be coming to a close, but the main talking point will be if problems re-open looking ahead to the rest of the year. It is thought the new loan of €130 billion will cover Greece in the short term, but what will happen when that starts to run out. Various countries that form the IMF are looking for officials from the European Union, ECB and IMF to monitor the Greek government from Athens and make sure the cuts actually take place.

It looks like the euro will remain in limbo with the small gains it has received this weak under threat if this cautious outlook on Greece continues.

Report by Tim Lewis

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