Inflation Report to show more QE needed

The fact that the Monetary Policy Committee (MPC) chose not to extend its quantitative easing (QE) programme at July’s meeting has been taken by some as a sign that it thinks that a sufficient amount of assets have been purchased. We do not agree. We think that the Committee was just waiting to revisit its forecasts in August’s Inflation Report and that these will show that more QE is needed. At August’s meeting, we expect the MPC to use the last £25bn that is currently available to it. There is also a decent chance that it votes to ask the Chancellor to extend the limit on QE.