Update 9:00 AM ET: The Bank of England chose not to raise rates this morning or engage in more quantiative easing this morning.
Here’s why: essentially, they’re pretty happy with the growth situation, with stabilizing home prices, and with consumer demand.
But, more importantly, inflation is and has been above the target of 2% in the UK.
Flooding the market with more easy money might actually work in Britain, as there seems to be some demand. And if that happens, inflation could rise beyond its current 3%.
As long as inflation remains high, it will be dangerous for the UK to go through another round of QE.
But what could change that?
The economy could slow down if the government’s austerity plans start to hit, rather than help, confidence. Also, if government layoffs and spending cuts hit consumer spending, inflation could dip as well.
That may create an opening for more QE, but at the moment, the Governor of the Bank of England Mervyn King looks set to hold his bullets.
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