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Bank of England leaning towards “QE2”

The Bank of England’s interest rate setting arm, the Monetary Policy Committee, released minutes from its September meeting today, hinting towards the possibility of further quantitative easing (“QE2”) in the coming months. Despite only one member (of nine) voting for further QE this month, the minutes indicated that most members feel a further round of asset purchase is warranted in the near future. Sterling weakened on the news to a 9 month low versus the Dollar and a 2.5 year low versus the Yen. Additionally, a decrease in one off tax receipts and higher government spending drove Britain’s government borrowing to a record high for the month of August. The £13.161 billion figure was well above expectations and contributed to negative sentiment that would last the trading day.

Today would also see the conclusion of the two-day policy meeting by the US Federal Open Market Committee, investors anticipating a so called “operation twist” in which the Fed would purchase longer dated bonds in an attempt to bring down long term financing costs. The announcement would be made post market close and so any effects would be felt tomorrow. Analysts were however anticipating a limited impact as the action had already been priced into equity and credit markets.

The FTSE traded in negative territory effectively all day, reaching lower lows to finish 75 points (1.4%) lower at 5288. The market was dragged down by miners and oil companies, industry heavyweights BHP Billiton and Rio Tinto down more than 4% on recurring global growth fears. Banking stocks were noted for their presence among the handful of companies finishing in positive territory, Lloyds the standout performer with a 5.6% gain.

This was posted in Bdaily's Members' News section by John Dance .