As the Bank of England is widely expected to keep interest rates at 0.5 per cent today while simultaneously boosting quantitative easing by another £25bn — we thought we’d share this graph:
That’s from Goldman Sachs, showing just how dramatic the BoE’s QE has really been in relation to other central banks. So dramatic in fact, that it now outpaces that of the Federal Reserve. On a relative scale, the UK’s QE is even more impressive, with the Gilt purchase programme accounting for almost 10 per cent of UK GDP, whereas the Fed’s equivalent Treasury purchases will only slightly exceed 2 per cent of US GDP.
Its no surprise then, that Wednesday’s latest bond market report from International Financial Services London had some interesting charts on UK finances:
The irony here is that the weakness in the UK’s fiscal position, caused in part by QE, is beginning to feed back into the QEasing process itself — one reason, perhaps, that Gilt yields remain stuck around the same levels as the day QE was launched on March 5.
Here for instance, is a good Bloomberg story on the topic:
July 9 (Bloomberg) — The biggest gilt investors say U.K. government securities provide little value even though the Bank of England probably will extend its bond-purchase program.
The U.K.’s growing budget deficit and the central bank’s reluctance to say when and by how much it will expand so-called quantitative easing are keeping Pacific Investment Management Co., which runs the world’s biggest bond fund, and BlackRock Inc. from increasing their holdings of the securities.
Guessing which gilts the central bank is going to buy is like “playing Russian roulette,” said Philip Laing, the Edinburgh-based director of government bonds at Standard Life Investments, which has about 118 billion pounds ($191 billion) under management. “While they’ll probably extend it, we are focused on the end of quantitative easing.”
More on that last point here.
Related links:
Keep the money flowing to stave off deflation - FT
Doubts grow over quantitative easing - FT
That’s not quantitative easing… - FT Alphaville
UK QE compendium - The Long Room
