Markets shrug off delay to expansion of QE (Jul 09)

The gilt market reacted with some concern to the MPC’s decision this month not to announce an immediate increase in the funds it plans to allocate to quantitative easing. However, we think that policymakers are simply waiting until the release of the next Inflation Report in August. Not only is the Bank likely to use up the remaining £25bn that has already been sanctioned by the Treasury, but it is also likely to request approval for a further expansion of the scheme. Accordingly, the support that the Bank is providing to the gilt market (and indirectly to other risky assets) should continue for some while yet.