UK must prepare for another round of QE

Speaking at a Fidelity panel debate, James Foster, manager of Artemis’ strategic bond fund, warned another round of QE was almost inevitable, as it was one of the only “levers” available to the government and the Bank of England (BoE).

“It’s a dreadful prospect on the one hand, as it will push down sterling, but there appears to be nothing else that works,” he said. “I’d guess we’ll see the next round of QE in the autumn.”

Foster added the UK could even see as much as another £200bn being pumped into the system, if the BoE believed it was necessary.

Independent pensions consultant Ros Altmann was aghast at the prospect of a further round of QE.

“Even more would be a disaster,” she said. “If the yields on gilts are pushed down to artificially low levels, this will mean the basis of pricing for all other assets has also been distorted.

“The lower interest rates go, the higher pension liabilities will be. Both defined benefit (DB) schemes and defined contribution (DC) pensions will be hit: DB, because liabilities will be pushed up, and DC because annuity rates will be pushed down.”

M&G institutional investment chief David Lloyd also warned of the dangers of the “political necessity” for the UK to continually generate economic growth, which QE is aimed at doing.

And National Association of Pension Funds chief executive Joanne Segars said it is important for the Pensions Regulator to take QE into account when assessing how it treats schemes whose evaluations will have been “perversely affected” by impacts of the measure.

The Organisation for Economic Cooperation and Development think-tank urged the BoE to start to withdraw its £200bn QE in its half-yearly global economic report last month.