Money Matters

So there were no surprises in the Bank of England’s decision to halt quantitative easing and hold the base rate in February. But what did those in the know have to say about it?  It seems that while some questioned whether the policy had worked, others said it had been positive for the UK.

Nick Hopkinson, Director of Property Portfolio Rescue on the possible affect on property:

“The Bank of England has dug a hole for itself by committing to such a vast Quantitative Easing programme and it is about time that the scheme was halted. QE and the artificially low base rate are combining to drive up inflation, creating another asset bubble. The Bank is now faced with the simultaneous need to control inflation and to avoid pulling the rug from beneath the economy as it struggles to recuperate.

“With the future uncertain, financially stretched homeowners coping with the reality of higher taxes and falling household incomes should take action now to ensure they are not at risk of falling into mortgage arrears when the base rate is increased and repayments are pushed up.”

Jeremy Cook, at World First Markets on what the move will mean for sterling:

“It is time that the UK was weaned off these very expensive drugs that have kept us going for the past year. I expect, come the end of the month, an upward revision in the GDP figure will back up this decision to pause quantitative easing, alongside a recovery in retail sales, consumer confidence and the jobs market. We are not out of the woods by any stretch of the imagination but this was a very important step on the road to recovery. The next step for the pound is to negotiate next week’s probably very gloomy inflation report 

Peter Hensman from Newton Investment Management said: “While there has not been the increase in broad money supply that the Bank set out initially as its criterion for judging the quantitative easing programme to be a success. The evidence of financial markets functioning normally and the signs of stabilisation in the broader economy justify at least a pause in the Bank’s efforts. Given the widespread perception of the fragility of the recovery, indicated by the sluggish 0.1% increase in GDP in Q4 and the likelihood of fiscal consolidation ahead, this is unlikely to mark the start of an aggressive move to tighten monetary policy.”

Joanne Segars, chief executive of the National Association of Pension Funds, said:

“The NAPF accepted the need for QE, but we also recognised that it was a strong medicine which artificially depressed gilt yields and increased pension funds’ reported liabilities in the process. We hope that lifting QE will raise yields, and so reduce scheme deficits.

“We want the Government to play its part in supporting pension funds and help stem the tide of scheme closures by issuing more long-dated and index-linked gilts. This will help bring the stability schemes need.”