By Marcus Leach
Last month the economy returned to growth, and in doing so a triple dip recession was avoided, and this month the Monetary Policy Committee opt against fresh stimulus for the economy. So, on that evidence, everything is rosy with the economy, right?
Not exactly. It is highly likely that we will see more quantitative easing in the coming months, as like it or not, we are not out of the economic quagmire just yet.
Glenn Uniacke, senior dealer at the foreign exchange specialists Moneycorp, warns that fresh stimulus is not necessarily the answer.
"So soon after the third quarter's barnstorming GDP figures, more QE today was unlikely, even though recent data has not looked as positive," he said.
"But this is largely down to the MPC sages' declining faith in the efficacy of QE, as the economy inches towards recovery with inflationary pressures now also building.
"So the money presses will be given a rest — for now at least.
"QE has boosted the equity markets and weakened the Pound, which has helped British exporters. But there's little evidence that the Bank's money printing has trickled down to the real economy.
"The issue is one of credible alternatives. The jury is still out on the Funding for Lending scheme, with banks remaining focused on repairing their balance sheets in advance of forthcoming regulatory changes rather than kick-starting the economy.
"With Mario Draghi hinting that even Germany is now facing contagion from the Eurozone crisis, the Pound's safe haven status should buoy Sterling once again - and in the short-term it should appreciate against the still struggling Euro."
Anna Leach, CBI Head of Economic Analysis, said that last month's GDP data was the likely cause behind the MPC refraining from injecting more cash into the economy.
“It is likely that some recent positive economic data and deepening scepticism within the MPC about the effectiveness of further gilt purchases, has tipped the balance in favour of keeping policy on hold this month," she said.
“Though we expect a modest pick-up in economic momentum through 2013, further QE remains on the table should conditions deteriorate, particularly if ongoing risks in the global economy remain unresolved.”
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