In a surprise move early in the New York morning, members of the Bank of England elected to following its scheduled interest rate decision. Although there was latent speculation that the measure would surface, for the most part, traders were expecting no real changes to QE with recent pickups in economic data. According to the release this morning, the Bank of England saw it necessary to pump another 50 billion pounds in to the economy to the tune of 175 GBP billion. A good plan to continually increase liquidity and credit in the country, the measure will likely produce more harm than good. As before, the more cash the MPC pumps into the economy, the higher the likelihood that the underlying currency will come under selling pressure. The more pounds that are available in the market, the lower the price will fall. Moreover, the increased supply of cash will likely lead to further inflationary pressures down the road, eroding potential growth in the near term. The sentiment can already be seen in today’s market action as the GBPUSD currency pair lost a whopping 150 pips in a matter of 5 minutes following the announcement. Once trading above the $1.7000 figure, the British pound is now trading about 220 pips lower (as of this writing, the pair is trading at $1.6771). A necessary evil, the chosen expansion will push British leaders of monetary policy to teeter a fine line when it comes to an exit plan.
