UK markets’ initial reaction to the £50bn of extra QE sanctioned by the MPC suggests that the announcement fell a bit short of investors’ expectations. Indeed, the pound strengthened shortly after the decision, while long gilt yields continued their ascent, recently seen in response to the improving trend in the economic data. Meanwhile, data from most markets suggest that QE2 has still been less effective, pound for pound, than the first batch of purchases. As a result, while we are confident that the MPC will sanction more QE later this year, question marks remain over the ability of further asset purchases to impart additional stimulus to the real economy.
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