Splits and drama are back at the Bank

David Hellier
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MEETINGS of the Bank of England&rsquo;s Monetary Policy Committee have become interesting again.<br /><br />After months of near perfect harmony on the committee &ndash; not even Danny Blanchflower could argue with holding interest rates at 0.5 per cent, for heaven&rsquo;s sake &ndash; at last there is tension.<br /><br />In the biggest split since April last year, three members of the committee, including governor Mervyn King, voted in favour of a &pound;75bn increase in the Bank&rsquo;s asset purchase facility, &pound;25bn more than the amount that was eventually nodded through.<br /><br />King, who has not been outvoted since 2007, sounded anxious about the prospects for recovery in the UK economy when he hosted the Bank&rsquo;s inflation report last week, and now we know he&rsquo;s ready to put the Bank&rsquo;s money where his mouth is.<br /><br />King&rsquo;s view, as summed up by the Bank minutes yesterday is as follows: &ldquo;The potential adverse consequences of adding another large monetary stimulus might be less severe than the possible costs of acting too cautiously.<br /><br />&ldquo;Insufficiently stimulatory monetary policy would cause inflation to remain below the target for a sustained period of time, depressing inflation expectations, and might harm public confidence in the recovery causing it to falter.<br /><br />&ldquo;Confidence in the efficacy of monetary policy might also be damaged, limiting policymakers&rsquo; ability to stimulate the economy in future.<br /><br />&ldquo; In addition, if it became apparent that monetary policy had been overly expansive, policy could be tightened by a combination of asset sales and increases in Bank Rate.&rdquo;<br /><br />That sounds a fairly convincing argument to me but these decisions are always a question of fine judgement.<br /><br />In the end the governor was outvoted on this, a rare occasion indeed.<br /><br />Few people know yet for sure whether the policy of Quantitative Easing will actually lead to banks lending more, although it seems to have helped Libor rates, the cost of funds for banks, to ease.<br /><br />But it is good to see that lively debate, splits and dissension are back on the agenda at the Bank of England.<br /><br /><strong>VOTING IRREGULARITIES</strong><br />Brokers at Charles Stanley were describing their surprise yesterday at their discovery of proxy cards being sent out by dissident shareholders in Sovereign Reversions, an Aim-listed company.<br /><br />The dissidents have sent pre-populated cards, which detail how investors should vote in a shareholders&rsquo; meeting due in a few days&rsquo; time.<br /><br />&ldquo;I&rsquo;ve never seen anything like it in my 20 years in the City,&rdquo; says Charles Stanley&rsquo;s Phillip Davies, who advises the company.<br /><br />Sovereign, whose board is offering to take pay cuts, has now sent a new set of plain proxy cards to shareholders, who must by now be getting pretty confused by the whole affair.<br /><br />It&rsquo;s too late, the board acknowledges, to postpone the meeting, at which the rebel shareholders want to oust certain board members.<br /><br />But the Aim team, or the Association of British Insurers, might want to ensure something like this does not happen again.<br /><br />david.hellier@cityam.com<br /><br /><strong>&bull; Allister Heath is away</strong>