The Bank of England jumped the gun today by introducing QE2 ahead of next month's results. This wasn't the only surprise because the cash injection was bigger than even those in the MPC were predicting.

So why did the Bank of England react?  Well the European Central Bank held interest rates at 1.5% today ignoring calls to drop them from their recent hike in favour of continues dampening of inflation. The Bank of England held their own interest rates at 0.5%, which was unsurprising if we predict that the UK will follow the US' lead in keeping interest rates low for longer. The ECB also agreed to buy €40bn in Covered Bonds today.

An injection of £75bn is a significant injection, but many predict that this may just be the initial instalment. The Bank are trying to manage inflation amid concerns that inflation won't stay high enough to meet expectations and therefore needs an artificial injection.

How sustained an impact this move will have on the banks to boost lending to small businesses is debatable. How sustained an impact this move will have on GDP statistics is also under question, but clearly the UK has decided to take action whilst the market mood is so fragile. The continued struggles over Greece and downgrades in Italy have forced the Bank's hand and may lead the way for the Eurozone to finally unite behind their own economic intervention.

Reflecting on the immediate impact of QE2, UK equity markets have shown approval by closing the day over 3.7% up, but Sterling and Gilt yields have moved in the opposite direction. This would be the natural impact for Gilts, as their values are compromised by increased supply, but the long term appetite for Gilts will be interesting to watch. Gilts from a distance have looked poor value for a while now, but that hasn't affected their popularity too much as investors have maintained allocation in preference to volatile equity markets.

If the banks use QE2 to boost lending then it is possible to see money finally reaching those small businesses who are the engine of future economic success, but suspicions remain that these recipients will continue to be circumvented and QE2 will boost the corporate bond market more than other areas.

Whether or not QE2 is the real answer, the start of the answer or just an opportunity to prove that the Bank can take action to artificially help the economy if needs be; the upshot is that action was needed.