European Central Bank may start full scale Quantitative Easing

by Neil Patterson

3 years ago

European Central Bank may start full scale Quantitative Easing

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European Central Bank may start full scale Quantitative Easing

The Euro hit a 9 year low against the Dollar at $1.1864 causing speculation amongst investors that the European Central Bank (ECB) must now start to stimulate the economy by instigating a full scale Quantitative Easing (QE) plan similar to those undertaken by the UK and USA.

This is because the only wiggle room on interest rates as an alternative to QE is to reduce them to a perception damaging 0%. A more robust QE plan would include buying Government Bonds.

Mr Draghi, President of the ECB hinted in an interview that this would be the next step. He said,”we are making technical preparations to alter the size, pace and composition of our measures in early 2015.”

The Euro crisis is exacerbated by political uncertainty in Greece with fears that the general election on 25 January could be won by the anti-austerity, left-wing Syriza party. This raises fears about whether Greece will stick to the terms of its international bailout and stay in the eurozone.

How does this affect UK interest rates and thus UK Landlords?

Problems for the UK’s largest trading partner are not going to be a good thing for our own economy and could very easily destabalise¬† our recovery. However it would certainly take off a lot of pressure, if there was any, to increase interest rates.

A lower value Euro will reduce inflation as a pressure on interest rates, because we are a net importer and goods and services will cost less. It will also make our exports less competitive on price and hence reduce our GDP growth and keep pressure on the Bank of England not to increase interest rates and stifle growth still further .

If keeping interests rates low for as long as possible is good news then this is good news, but I do believe that if the economy was in a stable and healthy enough condition to even consider a small rate increase it would be to the benefit of all of us.Quantitative Easing



Comments

Sam Addison

3 years ago

A masterly summation Neil. I heard Germany is against QE so that may provide some problems for Draghi.
As far as the UK is concerned we are still walking the tightrope between enough measures to satisfy the people who hold our loans and not so much as to use drastic measures like Greece or Eire which would upset our population.
Hopefully 'steady as you go' policies will prevail and there will be little effect on us landlords. We await our election with interest.

Neil Patterson

3 years ago

I agree Sam, we are still on an economic tightrope and could fall of either side.


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