THE CRISIS in the Eurozone, weak domestic demand and continued bank funding problems all threaten the UK’s economy, the Bank of England’s Monetary Policy Committee (MPC) concluded in its monthly meeting, the minutes of which came out yesterday.
However, conditions are so uncertain that the MPC – led by Sir Mervyn King (right) – decided against further bond purchases for now.
As £75bn of bond buying is currently underway, the MPC is also worried markets lack capacity to cope with more QE immediately.
The Bank believed an expansion of QE was justified in October as inflation is forecast to fall sharply in 2012.
Although factors like January’s VAT rise will drop out of the inflation figures next month, there were signs of a split on inflation this month – though some MPC members expressed concern at the rate at which inflation will fall.
Expectations of near term inflation may fall more slowly than expected, affecting wage and price-setting behaviour, for example, or the Bank may have overestimated spare capacity in the economy.
“With the current round of QE due to finish in early February, it looks likely we’ll see another £75bn then,” concluded Ernst and Young’s Item Club.