Bank of England readies new blast of QE for post-Brexit Britain

Wed Jul 13, 2016 1:29pm EDT
 
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By Andy Bruce

LONDON (Reuters) - Hailed by investors as a weapon to fight off recession but slammed by critics for fuelling inequality, quantitative easing looks set for a comeback in Britain as the Bank of England tries to shield the economy from the fallout of Brexit.

The central bank is poised to cut interest rates as soon as Thursday and will probably follow up soon afterwards by reviving the massive bond-buying program that it credits with helping to shore up the economy after the global financial crisis.

Economists are now asking how the BoE might tailor QE to meet the problems Britain faces in the aftermath of last month's vote to leave the European Union - a result that threw the country into political chaos and has sparked fears of recession.

Most economists polled by Reuters expect the BoE will cut rates to a new record low of 0.25 percent on Thursday, followed by an extension of the QE program which it adopted as the financial crisis raged in early 2009, probably in August.

Following the lead of the central banks in Japan and the United States, the BoE created 375 billion pounds ($496 billion) between 2009 and 2012 to buy government bonds to get money flowing through the economy.

The plan boosted asset prices but led to criticism that the BoE had provided most help to wealthy owners of shares and property. Supporters of QE say it has helped all households by boosting employment and reducing borrowing costs broadly.

The Reuters poll showed the BoE is expected to announce 50 billion pounds of extra asset purchases next month when it will factor the Brexit hit into its economic forecasts.

"Given how little room the BoE has to cut rates ... if they want to ease policy much more, they'll have to go for more QE," said Martin Beck, an economist with Oxford Economics.   Continued...

 
Pedestrians walk past the Bank of England in the City of London, Britain June 28, 2016.  REUTERS/Paul Hackett