QE expansion and rate hold may signal lower repossession risk

Homeowners may have been given a double boost that could lessen the chance of them suffering repossession.

This has come from the latest meeting of the Bank of England Monetary Policy Committee (MPC), which has decided today (October 6th) to hold the base rate at 0.5 per cent, but to raise the quantitative easing (QE) scheme of asset purchases from £200 million to £275 million.

A rate hold may have been very predictable. As recently as May there were three out of the nine members in favour of a rate hike, but in August and September there was unanimity in favour of a hold as the economic outlook worsened.

Whether this was the case this month will not be known for sure until the minutes come out on October 19th, but it may seem likely in view of the QE expansion.

QE works as a means of adding extra economic stimulus and is an option the MPC has used since it reached the point where it could not practically cut the rate any lower, so the decision to vote for more is intended to act in the opposite way to a rate cut.

A continued low base rate means no increase in mortgages, which may boost homeowners in that way, while the QE expansion – if it succeeds in boosting the economy – may reduce the chances of a new recession and the sort of job losses that could undermine the ability of mortgage payers to meet their monthly costs.

Last month, just one MPC member had voted for more QE, but the minutes revealed others would consider it if they felt the economic weakness was continuing, a situation the majority has now clearly judged to have arrived.

By Joe White