Post date: Oct 06, 2011 5:18:44 PM
The Bank of England launches a second round of quantitative easing in an attempt to stimulate the UK economy and shield it from the euro zone debt crisis - but not everyone believes it will work.
UK-STIMULUS - It's a bold step, designed to inspire confidence in a faltering economy.
The Bank of England has launched a second round of quantitative easing, pledging to buy a further 75 billion pounds of assets, on top of 200 billion pounds already committed.
UK Chancellor George Observe backed the Bank's decision.
UK CHANCELLOR GEORGE OSBORNE SAYING:"It is as the governor explains in his letter a response to the deterioration in the international economy and it is also a response to the severe strains in the euro zone."
The move puts the Bank of England ahead of other central banks in responding to an increasingly gloomy economic outlook and took many by surprise.
Interest rates were kept on hold at half a percent - as expected - despite forecasts that inflation will reach five per cent in coming months.
David Buick from BGC Partners says that shouldn't be the main concern.
BGC PARTNERS ANALYST DAVID BUICK SAYING:
"It's irrelevant at the moment - we have to get people back to work, and we have to stimulate growth. And if it requires quantitive easing and it requires a little bit of inflation, so what."
Buick also says the money needs to benefit the wider economy - not just the financial sector.
BGC PARTNERS ANALYST DAVID BUICK SAYING:
"I hope the Bank of England will vary the type of asset it's going to buy. As we know, small and medium type enterprises are not getting their money, so if they started to buy commercial paper direct - instead of just giving the money to the banks and focussing some of this money in the area where it's really needed, I think it'll have the stimulus that we're looking for."
But some analysts fear it won't have the desired effect.
Erik Britton is the Director of Fathom Consulting.
DIRECTOR OF FATHOM CONSULTING, ERIK BRITTON SAYING:
"They're just doing the same thing as they've done with the previous two tranches, which is to say, essentially printing cash and buying gilts and it's not obvious to us that's had any significant, lasting effect on the economy at all."
The announcement saw the pound fall to a fourteen month low against the dollar.
And with the UK economy flatlining over the past year, many believe this second round of QE won't be the last.
Kirsty Basset, Reuters.