One step back two steps forward

The Bank of England will this week be deciding on the quantitative easing commitment for the next three months.

Despite in all likelihood treating the unexpectedly awful GDP result for Q3 with cautious scepticism the bank is likely to be more aggressive with its digital money injection (hopefully £30bn+) than if the figures reported had been better.

If so this is good news for those that own assets because it will add momentum to the recovery and increase chances of both a V-shaped outcome and of earlier inflation.  The flip-side of course is that it increases the probability of overshooting and pumping too much money into the economy.  That is a problem for tomorrow (or 2013+) though and the priority should be avoiding a resumption of the destructive asset price deflation we’ve experienced over the last two years or so.

And we need it – after a nice bounce back from the brink people seem a little more nervous again with talk of a double-dip, W-shape recovery etc etc.

David Smith’s article is (as always) a well balanced review of the situation and well worth a good read.


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