Quantitative easing fails to ease recession fears

The Bank of England’s decision to extend its quantitative easing (QE) programme by injecting another £50bn into the economy reflects recent mixed economic data and lingering fears of a double-dip recession, reports Nick Huber.

When completed, it will bring the total amount of QE stimulus to £325bn. The extension of QE - electronic money pumped into the economy to make it easier for businesses in the hope that it will boost growth – was expected.

KPMG chief economist, Andrew Smith, said the extension of QE underlines how worried the Bank’s Monetary Policy Committee (MPC) is about “underlying weakness” in the UK economy.

“Output has been broadly flat for 18 months and remains some 4% below its pre-recession peak. Slack in the economy should see headline inflation plummet later in the year,” Smith said. 

He said that the effectiveness of QE was probably subject to “the law of diminishing returns” - meaning that additional asset purchases may not be as effective as earlier ones. However, he predicted that a further extension of QE was likely. “With more austerity measures, by way of spending cuts, on the way and interest rates already at a low, there are few other options available to support demand.”

Others said that although the QE may ameliorate problems in the short-term, it will create problems for workers looking to retire.

Joanne Segars, chief executive of the National Association of Pension Funds (NAPF), whose members’ pension schemes have assets of about £800bn, said:

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