MPC moves closer to new round of QE 

Tim Wallace
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MORE QUANTITATIVE easing (QE) is likely to be implemented “at some point” because of falling economic growth expectations, minutes of last week’s monetary policy committee (MPC) meeting, out yesterday, show.

However, the US policy of selling short-maturity assets and replacing them with longer ones, cutting long-term interest rates, was ruled out.

Only one of the nine members, Adam Posen, voted for £50bn more QE in an effort to boost the economy.

High inflation – currently 4.5 per cent on the consumer price index, well above the two per cent target – stopped others voting for QE as it is inflationary. Bank studies suggest QE increased inflation “by between 0.75 and 1.5 per cent” in 2009.

However, the MPC expects inflation to “fall back sharply” next year as demand declines and the VAT rise drops out of the figures.

The hawkish Spencer Dale thinks that might not happen. Private sector employment has increased, suggesting “relatively little spare capacity” exists, he said in a speech yesterday.

Other members are “waiting to see developments in the coming weeks, including the action of overseas authorities,” the minutes explain.

That includes action by the Fed, whose policy decision was announced yesterday, a week after the MPC’s.

Changes in the economy also matter: “For some, a continuation of the conditions seen over the past month would probably be sufficient to justify an expansion of the asset purchase programme,” the minutes concluded.