Sterling continued its resurgence against the dollar today after the Bank of England said that its quantitative easing (QE) programme risks igniting inflation.
Sterling rose from $1.548 to a new five-month high of $1.552 after monetary policy commmittee (MPC) minutes showed all members decisively behind the £50bn that was added to the quantitative easing programme two weeks ago.
The MPC’s surprise move to increase the scale of its ‘printing money’ scheme just two months into the process caught markets off-guard.
Inflation was yesterday shown to have come down to 2.3% in April - still above the Government-set 2% target.
But it is not yet clear the impact QE is having on either the real economy or in stoking inflationary pressures - and the MPC seemed to admit that the extra money risks setting free the genie of spiralling prices.
But the MPC added it would hike interest rates and sell some of the assets it has bought under QE back if it judged inflation could shoot back up.
This added to the recent economic optimism that has underpinned sterling. News that the Government is in talks with investors - including sovereign wealth funds - to sell stakes in part-nationalised banks Lloyds and RBS put 2 cents on the pound yesterday.
‘We suspect that interest rates are set to stay at 0.5% well into 2010.’
Tags: Bank Inflation, MPC, UK
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