Bank minutes reveal fears for growth

THE chances the Bank of England may have to revive its policy of quantitative easing (QE) have increased, several members of the Bank’s interest rate setting body said at its latest meeting.

The Monetary Policy Committee (MPC) voted 8-1 on 9 September in favour of holding interest rates at their current level of 0.5 per cent and maintaining QE at its current level.

But the minutes of the meeting showed some members believed the probability the Bank would need to take further action to stimulate the economy and control inflation had “increased.”

“It was quite likely that the recovery in the United Kingdom would not be smooth and that growth in some quarters would be relatively slow,” added the MPC.

Andrew Sentence was the one dissenting voice on the committee, voting to increase interest rates to 0.75 per cent, for the fourth month in row.

The committee viewed two risks to the economy: that above-target inflation would lead inflation expectations to drift up, making it costly to bring back to target, and that the private sector would not be able to fill the void left by public sector spending and jobs cuts quickly enough.

Further evidence that the Bank may have to step in to stimulate the economy came in the form of a gloomy outlook for economic growth for the second half of the year.

The MPC attributed growth in the first half to public spending and company stockbuilding, both of which would fall back in the second half of the year. It added headwinds to private sector recovery were “somewhat stronger than previously thought” as industry surveys showed growth slowing in construction, manufacturing and services firms in August

Wages would also remain subdued, said committee members. Wage increases this year have been around one to two per cent.