What is Quantitive Easing
August 7th, 2009 | by abigail |The bank of england made Sterling plunge in value again yesterday, GBP was up against the dollar on wednesday, then the BOE announced the reccession had been worse than expected but they thought it had nearly reached the bottom.
Since the BOE announced another £50 Billion was to be pumped into the U.K economy the FTSE – Londons stock exchange has rallied to a 2009 peak, Sterling has however taken a battering on the Forex markets with traders taking a bearish view in the short term (that means they want to sell it). This is not good news for people planning a holiday in europe within the near future, the pound is down against the Euro and expected to fall further. If you need travel money within the next couple of weeks it might be best to get now.
The BOE’s debt buying program will be increased by £50 billion pounds to £175 billion pounds (for any US readers thats amount $84 billion). The BOE hopes reducing borrowing costs will spur growth.
This is known as Quantitive Easing the instead of lowering interest rates the BOE will buy financial assets, including treasuries and corporate bonds, from financial banks using money it has printed especially (they probably don’t bother printing it really).
This will cause sterling to drop in value because the more £’s in circulation the less their worth.