Bank holds stance for now yet QE3 may come in 2012

 
Julian Harris
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THE BANK of England’s interest rate setting committee voted unanimously to stick to its current policy stance this month, yet many analysts expect a further extension of quantitative easing (QE) early next year.

Minutes of the Bank’s November meeting, released yesterday, showed all nine members voted to keep interest rates at 0.5 per cent and maintain the current level of asset purchases.

“I thought we’d see some dissenting votes from Adam Posen and perhaps one other for more QE,” commented RBS economist Ross Walker. “Policy wise, there’s maybe greater clarity in the sense that February is now looking more likely and anything before February is much less likely.”

A third phase of easing, dubbed QE3, is now “practically a foregone conclusion”, Nida Ali of the Ernst & Young Item Club said yesterday.

The Bank’s latest Inflation Report revised down inflation expectations, leading some members of the Monetary Policy Committee (MPC) to say that more QE “might well become warranted in due course”.

Some members of the committee were wary of stoking inflation, yet the dovish side of the committee was well represented. “While the worst risks [to the economy] had not so far crystallised, the threat of their doing so had increased, exacerbating the already severe strains in bank funding markets and financial markets more generally,” the minutes said.

The current series of asset purchases are scheduled to be completed in February, Ali said, with another announcement expected in early 2012.