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Bank may halt quantitative easing Bank may halt quantitative easing
(about 11 hours later)
The Bank of England is due to update the markets later on its policy of quantitative easing (QE), with many analysts expecting it to be halted.The Bank of England is due to update the markets later on its policy of quantitative easing (QE), with many analysts expecting it to be halted.
Under QE the Bank has pumped new money into the economy by buying assets such as government bonds, as a way to boost lending by commercial banks.Under QE the Bank has pumped new money into the economy by buying assets such as government bonds, as a way to boost lending by commercial banks.
Last week, it revealed it had spent all £200bn of the QE funds so far.Last week, it revealed it had spent all £200bn of the QE funds so far.
The Bank is also expected to announce that interest rates will remain at 0.5% for the 11th consecutive month.The Bank is also expected to announce that interest rates will remain at 0.5% for the 11th consecutive month.
The main priority must be to avoid a double-dip recession David Kern, chief economist, British Chambers of Commerce What if interest rates rise again?The main priority must be to avoid a double-dip recession David Kern, chief economist, British Chambers of Commerce What if interest rates rise again?
Economist Allan Monks of JP Morgan said there remained a "25% chance" the Bank's rate-setting Monetary Policy Committee (MPC) could opt for more QE.Economist Allan Monks of JP Morgan said there remained a "25% chance" the Bank's rate-setting Monetary Policy Committee (MPC) could opt for more QE.
He said that while he expects the Bank to pause QE, it may "keep the option of further extension of QE, if needed, on the table".He said that while he expects the Bank to pause QE, it may "keep the option of further extension of QE, if needed, on the table".
Inflation concernInflation concern
The expected decision to keep rates on hold at 0.5% comes despite official figures showing in January that UK inflation rose in December by 2.9%, its fastest annual pace for nine months, and above the 2% target. The expected decision to keep rates on hold at 0.5% comes despite official figures showing in January that UK consumer prices rose in December by 2.9%, their fastest annual pace for nine months and above the 2% target.
Bank Governor Mervyn King warned last month inflation was "likely to rise to over 3% for a while", and could go even higher if energy prices and indirect taxes were to increase further, but added that it "should return to target in the medium term".Bank Governor Mervyn King warned last month inflation was "likely to rise to over 3% for a while", and could go even higher if energy prices and indirect taxes were to increase further, but added that it "should return to target in the medium term".

Quantitative Easing

First, with the permission of the Treasury, the Bank of England creates lots of money. It does this by just crediting its own bank account. It plans to have created £200bn in this way by early 2010.
The Bank of England then spends the cash, mainly on buying government bonds from other banks, although it has also spent some of it on buying bonds issued by big companies.
The idea is that the banks will take that money and lend it to companies and individuals. They in turn will spend the money on things like expanding their businesses or buying new homes, which boost the economy.
Theoretically, when the economy has recovered, the Bank of England sells the bonds it has bought back to the banks and destroys the cash it receives. That means in the long term there has been no extra cash created.
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Although the UK did officially come out of recession in the fourth quarter of 2009 - ending six consecutive quarters of economic decline - the growth was just 0.1%, much less than expected.Although the UK did officially come out of recession in the fourth quarter of 2009 - ending six consecutive quarters of economic decline - the growth was just 0.1%, much less than expected.
For that reason, most analysts expect rates to stay at 0.5% until at least the second half of 2010 for fear of the UK falling back into recession.For that reason, most analysts expect rates to stay at 0.5% until at least the second half of 2010 for fear of the UK falling back into recession.
"At present, we do not expect, or think it necessary, to increase QE above £200bn," said David Kern, chief economist at the British Chambers of Commerce."At present, we do not expect, or think it necessary, to increase QE above £200bn," said David Kern, chief economist at the British Chambers of Commerce.
"But it is very important for the MPC to persevere with expansionary policies. The main priority must be to avoid a double-dip recession.""But it is very important for the MPC to persevere with expansionary policies. The main priority must be to avoid a double-dip recession."