Pound to Euro | Pound Euro Exchange Rate News and Insights

Pound euro exchange rate receives boost as balance sheet at Bank of England is expanded yet further

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Category: Pound to Euro

Published on Thursday, 09 February 2012 12:31

Written by Rob Samson

The pound euro exchange rate finds itself 11980 in the wake of today's Bank of England decision to expand its balance sheet by 50bn GBP in order to support the UK economy.

The decision was widely suspected, and investors have bid up the pound euro exchange rate in response to the elimination of any surprises being sprung by the Bank.

The decision is expected to keep UK gilt yields suppressed, reaffirming the UKs safe haven appeal over Europe, thus bidding up the pound to euro.

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The British pound will also be finding support as the Bank has shown it is willing to support the UK economy, recent signs that the economy is returning to the right path were not enough to dissuade policy makers.

Ian McCafferty, CBI Chief Economic Adviser, said:

"The Bank has been signalling that a further extension of the asset purchase programme was likely this month.

"Even though there are tentative signs that the economy is stabilising, the outlook is still highly uncertain. This new round of QE should help support confidence, though the direct stimulus to near-term growth is likely to be limited."

That said, there are some that are not happy, particularly those in the pension sector.

Patrick Bloomfield at Hymans Robertson says:

"Quantitative easing may sound like a matter only for economists, but the effects of it could impact on anyone approaching retirement, or already drawing a pension.

"QE3 could cause interest rates to fall, which in turn would likely lead to higher inflation. While a lower cost of borrowing is good for younger workers looking to get on the housing ladder, it’s bad news for savers, and also people looking to buy an annuity as they approach retirement. Insurance companies use the yields on bonds to set the price of annuities, but QE may see a drop in those yields, meaning annuities become more expensive, and offer less money per year to retirees."