Bank Of England Move Should Affect Car Industry

The Bank of England (BoE) recently decided to expand its asset buying program to 275 pounds. This second go at quantitative easing is designed to protect the faltering British economy against the debt crisis in the euro zone. New money will be used to purchase 75 billion pounds of assets, a move that could be far-reaching in terms of preventing recession.

Global growth has slowed, taxes are increasing, and government spending is being reduced. At the consumer level, we are enjoying low rates on car loans and mortgages at the expense of slow increases in wages and high inflation. The BoE realizes that the UK does not operate in a bubble- conditions in the rest of the world threaten its recovery. It has taken yet another step to combat this.

Inflation is expected to exceed five percent during upcoming months but it may fall short of the two percent medium-term target. According to BoE Governor Mervyn King, there is a shortage of money in the UK economy. This is what led the bank to restart quantitative easing this month, taking a more pre-emptive stance to the darkening outlook on the global economy than other central banks.

Since March 2009, the BoE has held interest rates at record low 0.5 percent, providing consumers with the perfect opportunity to take out mortgages and car finance. Businesses and the government applaud the BoE move to purchase additional government bonds. However, the economic boost it will generate is still uncertain, since bond yields are currently at record lows.

Finance Minister George Osborne pointed to evidence revealing that quantitative easing will help maintain low interest rates and increase demand, both good things for British citizens. Some economists believe that cheap credit is not what is keeping people from taking out car loans and mortgages. It is instead fear of what will happen next with the economy.