November 5th will no doubt keep England on the edge of its seat. That’s the day the Monetary Policy Committee will decide whether or not to end the process of quantitative easing, which in layman’s terms, means assisting the country’s financial system so that it doesn’t fall apart:
RBS: The 5th November BoE MPC decision will be incredibly important for the UK
asset markets and sterling. A decision to bring the great Quantitative Easing
experiment to a close, will undoubtedly damage the gilt market – witness the 17bp
back-up in 10Y yields last week when there was no reference in the Minutes to
Governor King still looking for £200bn of QE, against the £175bn current level.
The BoE’s [Adam] Posen, speaking overnight, was the last MPC member scheduled to speak before the Bank’s ‘purdah period’, the period eight days before the start of the MPC meeting in which no comments on monetary policy can be made. He certainly seemed quite relaxed about the prospect of inflation, calling those who believe that QE will result in inflation ‘nutters’. But while he appears relatively convinced of the merits of QE, this does not appear to be a view shared by all MPC members. On balance, other members, with the possible exception of Miles, have been a little more upbeat on the economy.
The reason for concern is understandable. When the government is pumping excess money and liquidity into the financial system, inflation can quickly become a concern. To better understand quantiative easing and the effects it has on the economy, check out this video from Marketplace’s Paddy Hirsch.