MNI PREVIEW: BOE To Boost QE, But Little Guidance On How Much

The Bank of England is set to expand its quantitative easing programme at its meeting this week as the economic outlook darkens, but a lack of guidance means modal market expectations for an additional GBP100 billion to take its stock of asset purchases to GBP845 billion could prove off the mark in either direction.

While a failure to add to purchases in the decision to be announced on Thursday would be a significant shock, monetary policy committee members disagree over how much more QE can achieve with very flat yield curves and compressed term premia, and have given no clues as to the magnitude or pace of any expansion.

When QE was re-launched in March at the height of market panic over Covid-19, gilt purchases matched the pace of issuance, at GBP13.5 billion a week. The Bank slowed these to GBP6.9 billion a week in June and to GBP4.5 billion from August. The current round of purchases will take until the end of the year to complete.

LESS POTENT

While MPC member Gertjan Vlieghe said on Oct. 20 that QE is probably less potent now than in March, at the height of market disruption, Deputy Governor Dave Ramsden argued the following day that there was still scope for bond purchases to reduce yields on longer-dated gilts, even though these are already at historically low levels. Not acting could result in a rise in yields, he said.

One former MPC member has told MNI that there should be a framework to help determine when markets are stressed and that, at least, it would be desirable to provide numerical ranges for the impact of QE.

The UK's newly-announced month-long national lockdown could be factored into estimates of the likely impact of into projections contained in Thursday's Monetary Policy Report, possibly turning its modal projection for a roughly lopsided V-shaped recovery into a W.

The BOE is also consulting on the practicality of cutting Bank Rate below zero, but November would be too soon for further steps towards that.