The end of the road for QE?

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The MPC voted for no changes to interest rates or its sset purchase programme at its November meeting today.

So far this year QE had been expanded by £100 billion, with the last tranche of £50 billion in asset purchases announced in July. This decision didn't surprise anyone, with commentary from economists over the past few weeks calling 'no change' this month.

But go back a month or so and most were expecting to expand it assets purchases once the last round was completed. HM Treasury's survey of independent forecasts in October showed that the median forecast for the Bank's stock of asset purchases would stand at £425bn by the end of the year. While the door will still be open for more QE at the December meeting, there are a few factors behind the change in view.

There has recently been a few notable speeches and statements from current and previous MPC members, some of which could be seen as questioning the impact of further rounds of QE. At face value, this would be a worrying development - particularly if the economy doesn't start to show signs of emerging from the current weak patch - if the Bank feels the main lever it has to pull isn't doing anything, then where might we go from here?

The other factors in the mix are recent statistics which suggests that there has been some, albeit very modest, underlying growth in the past couple of quarters and the other significant Bank intervention - Funding for Lending - is only just getting going would also support a wait and see approach for the time being.

With the possibility that the economy may well hit a few more bumps on the way back to recovery in 2013, it too soon to say that QE has come to the end of the road.

And finally....Hat tip to Ed Conway for his thoughts on what other 'assets' the Bank could have bought with £375 billion, including all of the property in Scotland and a tower or pennies stretching to Mars.


Chief Economist

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