Growth concerns and inflation cause a three-way split

FOR the second consecutive month, a three-way split has emerged among City A.M.’s Shadow Monetary Policy Committee (MPC) members ahead of the Bank of England’s policy announcement scheduled for midday today.

Two members voted for an increase in interest rates of 0.25 per cent while two others thought the time had come to extend quantitative easing (QE) further. Both City A.M.’s Allister Heath and Henderson’s Simon Ward maintained their hawkish stance, citing high inflation and an improvement in the money supply.

In contrast, Capital Economics’ Vicky Redwood and Lloyds TSB’s Trevor Williams called for further loosening to offset the slowdown in the economic recovery. Williams thinks that another £50bn of asset purchases is needed ahead of next year’s fiscal squeeze.

The remaining five members voted for no change this month but a majority stand ready to buy more bonds should the economic situation deteriorate from here.

Despite Bank of England external MPC member Adam Posen’s decidely dovish speech last week, the consensus among City economists is that the Bank will hold fire this month ahead of the Comprehensive Spending Review.

But many have not ruled out a policy shift in November when the MPC will benefit from fresh growth and inflation forecasts, the austerity cuts have been outlined and the first estimate of third quarter GDP has been published.