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Philip Shaw, chief economist at Investec, described the Bank of England's £5bn injection into UK money markets today as "a substantial sum" as it is equivalent to about a quarter of banks' reserve targets. "However despite the size of the add, the initial response from interbank markets has been one of disappointment, in the sense that it is insufficient." He noted that the pound is one of few currencies to fall against the beleaguered dollar overnight and has weakened further. "One reason is that today's BOE actions highlight the extent to which the UK is vulnerable to the dislocations in credit markets. Implicitly the thinking is that if technical measures to reintroduce liquidity to markets fail to have the desired effect, the MPC could cut the Bank Rate more aggressively. This is not at all out of the question, but it will take a while to determine how realistic this prospect is, particularly with inflation above target and rising."
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