A QE surprise
If you know you're going to do something soon, you might as well go ahead and do it. I suspect that's the reason the Bank of England's Monetary Policy Committee chose to extend its quantitative easing (QE) programme today, even though they didn't strictly need to make a decision until next month.
Today's move also maximises continuity. The market has been told that the programme will continue, before it had started asking itself whether it would.
As of this morning, the Bank was around £52bn of the way through the initial £75bn it set out to spend in March, so it has been spending at a steady rate of roughly £25bn a month. Under the original terms laid out by the chancellor, the MPC has another £75bn available to spend. But given the timing, if it had announced it was going to spend the full amount over the next three months, that would have been considered an acceleration. So the £50bn decision (over three months) enhances continuity in that sense as well.
The evidence on QE to date has been mixed. We won't get a clear steer on how the Bank itself thinks things are going until next week's Inflation Report. But the message of today's decision is that the MPC thinks there's more to do.
Though they fell sharply when the QE programme was first announced, and they have fallen again today, yields on government bonds are now around a tenth of a percentage point above where they were when QE started.
You can read the data a number of ways. Bank officials will no doubt point to signs of increased liquidity in key markets for corporate debt. And, as I've discussed before, UK bond yields are determined by a lot more than QE.
I may have more on that later on. But whatever the reason, it's fair to say that QE's impact on long-term borrowing rates to date has been less than many of its proponents had hoped.
That suggests the programme has a while to run. Of course, the MPC can stop the programme any time, but it would take some pretty exceptional data for them to risk unsettling the markets. As of today, it's a safe bet that QE will be operating for at least another three months, probably longer.
There is nothing especially surprising in the statement itself, though note that the MPC has now joined those who see "promising signs that the pace of decline [in the UK] has begun to moderate". That said, "the timing and strength [of] recovery is highly uncertain". No news there.