Seven members recommended that the policy should be paused in February leaving the £200bn of assets bought so far intact, while two members voted in favour of an extension to quantitative easing. None voted for a withdrawal of the stimulus.
The Bank of England is widely expected to today call time on its unprecedented policy of purchasing assets – mainly gilts – which has been in place since last March.
Capital Economics’ Vicky Redwood, who voted for an extension, says that the economy is still weak and needs support. The other dove, Lombard Street Research’s Jamie Dannhauser, argues that the money supply is now contracting and the MPC still has more work to do.
Other more hawkish members, such as Henderson’s Simon Ward, say that the weakness in the money supply is offset by rising velocity of money so there should be no cause for concern.
Ward, along with Citi’s Michael Saunders, thinks that inflation will stay high for longer than the Bank currently expects, which could lead to much sharper tightening in policy over the course of 2010.
The Bank has said repeatedly that it will look through the current spike in inflation, which it believes to be temporary.
But with the UK economy still extremely weak, a number of the Shadow MPC members recommend maintaining a loose stance towards monetary policy. This would include leaving the door open for further asset purchases, should it be deemed necessary later this year.
Greater clarity on the Bank’s decision will come on 10 February in the form of its quarterly inflation report.