Bank heads towards a rift on way ahead

THE Bank of England is heading towards a rift over what to do about the slowing recovery and rising inflation, according to economists.

Analysts at Investec Economics expect the release of this week’s minutes of the Monetary Policy Committee’s (MPC) last meeting to reveal that some members now want to increase the stock of quantitative easing (QE) to further stimulate the economy.

Following the Bank’s inflation report, Investec Economics’ David Page forecasts a split: “We also expect the committee to record its first three-way split in two years, expecting two members to vote for further QE and Andrew Sentance to continue to press for a bank rate rise.”

Committee members that analysts expect to lead the charge towards more QE include David Miles, Adam Posen and Paul Tucker. But even if some of the committee does not yet vote for further stimulus, analysts expect the minutes to reveal a growing divergence of opinion, with RBSā€ˆnoting the increasingly “agnostic tone of recent MPC speeches on policy risks”.

Fathom Consulting’s Danny Gabay says: “Transparency is always thought to be a good thing but sometimes it makes it clear there’s an awful lot of confusion.”

Regarding the possibility of a three-way split, he added: “It would explain some of the issues surrounding the inflation report. It would obviously indicate that the MPC is caught between a rock and a hard place and really needs inflation to come down sooner rather than later.”

King insisted last week that persistently above-target inflation is due to “temporary price shocks”, but some view the Bank’s prediction on inflation as overly optimistic.