QE or quit – that is the question facing Bank of England
Doubts over the Bank's of England's £200bn aid package for the struggling UK economy resurfaced today after a disappointing decline in the money supply.
The Bank's preferred measure of bank and building society deposits and cash fell 0.5% in December — or £7.6bn — after rising by 0.9% in November. Lending grew by 0.4%, slowing from 0.7% the previous month.
Rate-setters are trying to boost the economy through quantitative easing — buying up assets with newly-created money — after slashing rates to record lows.
This programme has ended after nearly a year but the slim signs of progress — coupled with the UK's anaemic 0.1% growth in the final quarter of 2009 — could prompt fierce debate at the Bank's policy meeting this week over another dose of the medicine.
Bank Governor Mervyn King has called the current growth in the money supply ‘undesirably low’, although another member of the Monetary Policy Committee (MPC), Andrew Sentance, has voiced fears over inflation if the economy picks up more quickly than expected. Howard Archer, economist at IHS Global Insight, said: “There may very well be a split vote within the MPC on whether or not to extend QE.”