Bigger picture, with inflation far above the targeted rate in England, this shows a change in thought from central bankers away from worrying first about price stability. Something that has been hinted at elsewhere.
- Today’s expansion shows policy makers are prioritizing the recovery over the threat from inflation, which was 4.5 percent in August, more than double the Bank of England’s target.
- The Bank of England pledged to buy the most bonds since the depths of the last financial crisis as officials raced to stop the euro-region debt turmoil from pushing the economy back into recession. The nine-member Monetary Policy Committee led by Governor Mervyn King raised the ceiling for so-called quantitative easing to 275 billion pounds ($421 billion) from 200 billion pounds. That’s the biggest expansion since the first round of stimulus in March 2009. Only 11 of 32 economists in a Bloomberg News survey predicted an increase in asset purchases.
- The central bank expects the new round of stimulus will take four months to complete and it will keep the program “under review.”
- The pound dropped and bonds jumped after the decision, which came a day after a report showed Europe’s second-biggest economy grew less than previously estimated in the quarter through June. The central bank said in a statement that slowing global growth and the turmoil in Europe “threaten the U.K. recovery.”
- “I think it’s a dramatic intervention and signals the urgency of the situation,” said Brian Hilliard, chief U.K. economist at Societe Generale SA in London, who predicted a 50 billion-pound expansion. “I expect the size of the program to be increased further.”
- The pound fell as much as 1.2 percent against the dollar after the decision to $1.5272