The Bank of England announced at midday that they would improve their current asset purchasing scheme by £50 billion up to £325 billion in an attempt to stimulate economic growth. The decision was widely predicted, although positive manufacturing and industrial output figures had cast doubts over the immediacy of the new measures. The BoE decided to maintain their benchmark interest rate of 0.5%.
The decision triggered an initial Sterling rally, with the Pound improving by 0.40% against the Euro, US Dollar, Canadian Dollar, and Australian Dollar to reach daily highs in all 4 currency pairs within 20 minutes of the announcement.
For the most part markets had already factored the increase in asset purchases into their outlook, but there was a sense of relief that only £50 billion not £75 billion or more was added to the Quantitative Easing programme.
The BoE cited a “significant margin” of slack in the British economy as a key reason for creating the £50 billion of electronic money now rather than later in an attempt to improve economic growth. It stated that “tight credit conditions” and “fiscal consolidation” were presenting a “headwind” that could lead to a second quarter of contraction, and subsequently a technical recession.
Although the Pound has rallied initially on the back of the decision, the general market sentiment suggests that by diluting the currency, the BoE has risked triggering a Sterling selloff. As of 12:38 GMT, the Pound to Euro Exchange Rate is currently 1.198. The Pound to US Dollar Exchange Rate is 1.586. The Pound to Australian Dollar Exchange Rate is 1.471. The pound to Canadian Dollar Exchange Rate is 1.581.
