The key elements of the announcements today were:

1. The existing asset purchase facility of up to £50 billion has been expanded to up to £150 billion, with gilt-edged securities added to the list of eligible assets, and purchases to be financed by the creation of central bank money rather than Treasury bill issuance.

2. The MPC has initially authorised purchases of £75 billion over three months. Gilts are likely to account for the majority of this amount. Purchases will be of medium- and long-maturity conventional (i.e. not index-linked) gilts.

3. The effectiveness of the programme will be judged by its impact on the supply of money and credit but the MPC has failed to specify any quantitative targets. The relevant monetary aggregate is presumably the broad money supply, M4, but this is not confirmed.

4. The MPC cut Bank rate by a further 0.5 percentage points despite possible “counter-productive effects on the operation of some financial markets and on the lending capacity of the banking system”. This suggests a split decision. The further cut is logically inconsistent with the reduction of only 0.5 percentage points last month – the MPC agreed that additional stimulus was required but judged that cutting below 1% might have no positive impact on the economy.

The welcome aspects of the announcements are that asset purchase plans are on the right scale – £150 billion is equivalent to 7.5% of M4 – and the focus on buying medium- and long-term gilts will maximise the monetary impact. (This is because longer-term gilts are held mostly outside the banking system so purchases will boost non-bank domestic investors’ bank deposits, included in M4.)

Less impressive is the MPC’s failure to specify a target impact on M4 and lending, or to make a commitment to reining back monetary growth once economic recovery is established to ensure there are no longer-term inflationary consequences. In addition, the Bank rate cut was not necessary to implement quantitative easing and is likely to put further pressure on banks’ interest margins, with negative implications for credit supply.