QE2 launch fails to boost UK markets

The Monetary Policy Committee’s (MPC’s) decision at the start of October to undertake £75bn of asset purchases by February has not yet provided much of a boost to UK markets. In 2009/10, QE reduced the spread of gilt yields over risk-free interest rates substantially – but the spread has barely narrowed so far. The first batch of QE also coincided with a significant reduction in corporate bond spreads – but they have not narrowed more than those overseas over the last month. Sterling has also appreciated a touch, the opposite of QE’s intended effect on the exchange rate. At least UK equities rose more sharply on the day of QE’s announcement than those overseas, perhaps pointing to a small positive boost. But overall, QE2’s launch has been overshadowed by continued fears about the strength of the global and UK economic recoveries.