Investments  

Return of QE ‘likely before long’ – economists

The Bank of England’s decision not to further ramp up its quantitative easing (QE) programme last week was only temporary and should not be interpreted as a clean bill of health for the UK economy, economists have warned.

The Bank’s Monetary Policy Committee last week voted not to expand QE, which currently stands at £375bn in purchased bonds.

The initiative, which involves printing money to buy government debt, has been used to boost the UK economy during years of financial crisis.

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But the decision not to increase the purchases does not mean the UK is out of the woods, according to experts.

Azad Zangana, European economist at Schroders, said that while indicators were still poor the Bank had shifted emphasis onto the Funding for Lending Scheme.

“Although activity data such as jobs figures were positive, they lag the economy by a few months,” he said.

“I would place more emphasise on weak recent PMI surveys and retail data.”

Mr Zangana believes the Bank is waiting to see what the pickup is like for the Funding for Lending Scheme, which incentivises the banks to lend to households and businesses.

He added: “The Bank is still trying to assess whether the Funding for Lending Scheme has helped.

“The banks are willing to lend to more risky individuals, but is there enough demand?”

Vicky Redwood, chief UK economist at Capital Economics, suggested the UK has entered another phase of stagnation, meaning quantitative easing is still on the cards.

“The weakness of the economy seems to be down to more than just temporary factors,” she said.

“The business surveys have pointed to flat underlying output for several months now. It is hard to see where any improvement will come from this year. We expect the economy to expand by just 0.2 per cent in 2013 as a whole.

“Accordingly, we still think more asset purchases are likely before long.”