The MPC's announcement of an expansion of QE has come earlier than expected but is warranted by recent news – particularly the disappointing money numbers for March discussed in an earlier post.

The Bank of England will expand its QE operation from £75 billion to £125 billion by extending the current buying programme by a further two months to early August. Purchases are running at about £25 billion a month, with the total currently at £52 billion. The MPC has scope to boost the programme by a further £25 billion within the existing £150 billion authority granted by the Treasury.

The MPC's statement sounds more hopeful on the economy, noting "promising signs that the pace of decline has begun to moderate". This suggests that next week's Inflation Report will retain the optimistic recovery profile shown in February – the MPC's forecasts could be similar to the Treasury's, which have been widely ridiculed. CPI inflation has recently been well above the Bank's projections but the statement claims that a fall below the 2% target is still likely later this year, reflecting favourable food and energy price effects and a sharp easing in pay pressures amid rising economic slack.

Even after today's expansion, the UK's QE operation is smaller than the equivalent US initiative. The Federal Reserve is committed to buying up to $2 trillion of securities by the end of 2009, equating to 14% of US annual GDP. The Bank of England's new £125 billion target amounts to 9% of UK GDP.