25
Oct
Bank of England's MPC united over quantitative easing
The Bank of England believes inflation will fall back and the
economy needs boosting - not reining in Continue reading the main
story
Minutes from the MPC's meeting earlier this month show members
considered injecting between £50bn and £100bn.
The committee cited a sharp deterioration in the international
outlook as a key factor.
The vote for more QE marked a sharp turnaround in the members'
positions.
At the previous meeting in September only one MPC member, Adam
Posen, had pushed for more QE.
All members voted to keep interest rates unchanged at their
record low of 0.5%, despite inflation running well above the 2%
target rate.
Figures released on Tuesday showed consumer price inflation rose
to 5.2% last month.
The MPC's minutes showed that the committee was expecting
inflation to be above 5% in the near term, boosted by increases in
energy prices.
But its view is that domestically generated inflation had
remained contained and would fall back next year.
Falling prices?
In a speech on Tuesday evening, the governor of the Bank of
England, Mervyn King, said inflation would fall sharply in 2012
when the January 2011 rise in VAT dropped out of the data and the
effect of past oil price rises started to fade.
The MPC minutes echoed this, saying that there was "little
further upside news" on the outlook for inflation. In fact, the
Bank was more concerned that without extra QE, that could fall
below target.
They also pointed out that financial markets were trading on the
expectation that UK and US interest rates would remain unchanged
for two years.
Chris Williamson, chief economist at Markit, said the votes
highlighted the delicate state of the UK economy.
"The speed with which the economic outlook has deteriorated is
highlighted by the fact that all members of the MPC voted for the
additional £75bn of quantitative easing earlier this month,
with some members even voting for a larger stimulus," he said.
"This is a marked contrast to the September meeting, when just
one member (Adam Posen) voted for more QE."
The MPC said it did not expect the impact of this round of QE to
be materially different to the £200bn of purchases made
between March 2009 and February 2010.
A Bank report into the effect of the first round of QE found the
stimulus measure helped gross domestic product increase by about
1.5% to 2%.