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Further stimulus for UK economy but not as we know it

Further stimulus for UK economy but not as we know it

There was no firm signal from Bernanke overnight that more QE was on the horizon in the US – QE is largely seen as positive for the economy but negative for the strength of a currency. As such we have seen little change in GBP/USD.

The Minutes of the July MPC meeting could make interesting reading.UK inflation fell in June to the lowest level since late-2009 as early summer sales and falling petrol prices brought the annual rate of CPI down to 2.4%, significantly below expectations. This does provide a some head room for the BoE to perhaps cut rates further or increase the QE program but the market seems to have mixed opinions on this with some predicting one rate cut before the end of the year and other predicting no change on all fronts.

In many respects, the MPC meeting could easily be overshadowed by today’s expected announcement from HMT that the government is to launch a ‘UK Guarantees’ scheme to offer loans of £40 billion to ‘ready or nearly-ready’ nationally-significant projects in areas such as energy, transport and communications (including broadband) that can start within 12 months. There will also be a temporary lending programme for stalled private-public partnerships worth around £6 billion and £5 billion in support for British exporters. The government will be at pains to point out that this will not add directly to the debt burden as these are contingent liabilities that are only triggered should the loan default. If the government chooses large enough companies that should be unlikely, although they will benefit from lower borrowing costs.

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