Inflation report suggest room for more QE, says Capital Economics

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Bank of England governor Mervyn King’s comments at the post-inflation report suggest the door remains open for further quantitative easing, according to Capital Economics.

Chief UK economist Vicky Redwood says: “The forecasts make for fairly gloomy viewing – showing inflation projected to be higher in the near-term, but growth weaker.”

“Indeed, the committee says that the chances of a rapid recovery have receded significantly.”

She adds: “Overall, then, King’s comments make us a bit more comfortable with our forecast that the committee will resume its asset purchases before long.

“Note that the Committee paused in May, only to resume its asset purchases just two months later. We still expect £50bn more gilt purchases in February, possibly accompanied by an interest rate cut.”