Mervyn King from Bank of England worries investors

Bank of England Governor Mervyn King is under pressure from investors. The latter are concerned he may not buy promised 75 billion pounds ($110 billion) worth government bonds. 

King’s plan to purchase assets with printed money that was unveiled a month ago is aimed at recovery from economic crisis. He stated he had doubts if officials would be spending all the money available for them, once the bond yields rose after initially dropping to record lows. The reason investors are worried about King’s consistency is the Bank of England announcement on its first monetary policy decision since quantitative easing started. The new policy will leave bank’s benchmark rate at 0.5 percent, stated all but two of the 62 economists in a Bloomberg News survey. 

Moreover, it should be stated that one of the reasons why the U.S. Federal Reserve decided to go ahead with a similar program for Treasuries was the early success of King’s gilt purchases. Janet Yellen, president of the San Francisco Federal Reserve Bank, commented on the programs by saying they had “resulted in an immediate and sharp decline in interest rates.” 

Talking about the outcomes of the U.K. plan, we should say the gilt yields are still about 30 basis points lower than the day before the announcement on the program was made. 25 billion pounds of gilts have been bought out by the central bank. The National Institute of Economic and Social Research estimated that GDP fell 1.5 percent in the first three months of the year, almost reaching the biggest drop since 1980. The central bank forecasts the inflation to decrease to 0.3 percent in two years.