MPC warns of rising threat from Eurozone

The rate-setters at the Bank of England expressed its severe concerns at the threat the Eurozone debt crisis poses to the UK economy at the last meeting of the Monetary Policy Committee, its minutes show.

The committee’s nine members all supported keeping the level of monetary stimulus for the economy, quantitative easing, at the £75bn previously targeted.

They were split on whether to increase the size of the asset purchase programme and agreed to look at it again at a later meeting.

And all unanimously voted to maintain interest rates at the current ultra-low 0.5 per cent, as economic woes deepen.

Members said the outlook for growth was “unusually uncertain”, reflecting UK exposure to the struggling Eurozone, unemployment figures and reduced consumer and business spending.

"While the worst risks 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 board was concerned at the Eurozone’s inability to resolve the debt crisis, and warned that “failure to respond successfully to those challenges would have significant adverse consequences for the world and UK economies.”

The minutes also stated the GDP is likely to remain “significantly below” pre-recession trends, despite a 0.5 per cent increase in the third quarter of 2011.

Trends indicate that the UK is likely to fall to stagnation in the fourth quarter, even as yields on longer-term UK government bonds fell this month.

The board also discussed other areas of concern, such as the reduction in interbank loans and subdued lending to domestic households, which could have an impact on growth.