Schroders’ Isaac: Bank of England QE programme will top £600bn

The Bank of England will continue with its quantitative easing programme until it owns all of the gilt market not controlled by life companies, according to Schroders’ Gareth Isaac.

Speaking at Investment Week’s Senate Summer Investment Conference in Monte Carlo last month, Isaac (pictured) said the Bank would not raise interest rates “for a number of years” and suggested it would be forced to expand the remit of its stimulus programme in future.

The Bank today announced a further £50bn of quantitative easing, having already bought £325bn worth of the £1trn gilt market since launching the first round of QE in March 2009.

“At £325bn, the Bank already owns around 35% of the gilt market, and they will continue with QE until they own all the market not accounted for by life companies, which will eventually put them at 70% of the overall total,” Isaac said.

The QE programme has coincided with a rush from investors to buy gilts as part of a hunt for safe havens in the face of the eurozone crisis.

As a result, yields on gilts have plunged to record lows, with 10-year benchmark gilts currently yielding just 1.68%.

Isaac, manager of the Schroders Strategic Bond fund, said recent moves by the Bank and the UK Treasury to expand banks’ lending capabilities are a positive move, but not the end of the story.

“The announcement was a step in the right direction, but banks are still taking on the credit risk. It is the Bank that will eventually have to take on the credit risk for these kind of schemes,” he said.

Isaac said the Bank would likely look to keep hold of its gilts until maturity rather than attempting to sell them back into the market or, as some have speculated, cancelling its holdings.

 

This article was first published on Investment Week

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