QE: More to do?
For once, the Monetary Policy Committee has pulled off a positive surprise.
When the Bank's policy-making committee said last month that they wanted to wait and see before deciding to continue with quantitative easing, the markets reeled at the policy's "imminent" demise.
Officials said we shouldn't jump to any conclusions about the future of QE. They really would "wait and see". But private and public remarks by some officials led people to suspect that they would put the policy on pause.
Earlier today, I did say it was quite possible that the Bank would decide to spend another £25bn, but spend it more slowly. In the event, they are spending more than I thought - another £50bn. But they are going to spend it more slowly.
I'm no conspiracy theorist. I don't think they planned to wrongfoot the market. But given what I said earlier about the policy's potential to affect confidence, it will have been no bad thing, from the MPC's perspective, that traders were expecting them to do less. The yield - or interest rate - on ten-year government bonds fell 15 basis points (0.15 of a point) in response to the news.
To date, the Bank has been spending about £25bn a month. Now they are going to spread £50bn in purchases over three months. It's possible to read too much into this - officials themselves like to emphasize that QE is not an exact science.
By taking three months, rather than two, they can put off another decision on QE until the November Inflation Report. But you can at least conclude that they don't think the economy's need for cash is quite as urgent as it was before.
What does this decision tell us about the Bank's view of the economy? Well, to state the obvious, it thinks that QE has more to do.
The Bank has been sceptical of the early estimates for GDP in the past - their growth forecasts show a range of possible final outcomes, for the past performance of the economy as well as the future. And indeed, the Bank - along with some other commentators - may well expect the disappointing second quarter estimate to be revised upwards.
But today's statement suggests they have taken that first estimate seriously enough to revise down their forecasts for past and future growth - at least for 2009. Despite today's encouraging news about rising car sales and, possibly, rising house prices, the Bank's policy makers probably believe there is still greater risk in doing too little than in doing too much.