Unity on QE2 as MPC mulls £100bn spree

Tim Wallace
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THE BANK of England’s new phase of quantitative easing (QE2) could rise to £100bn in purchases, minutes to its October meeting revealed.

All nine members voted for a £75bn rise in the asset purchase programme, believing a recession in the Eurozone to be likely, which would damage the UK’s economic growth prospects.

The outlook for the US and Asia was also subdued, the Bank’s Monetary Policy Committee (MPC) noted.

“Depending on developments in the euro area and financial markets, the size of the stimulus could be adjusted in either direction,” the minutes read. The MPC considered extending the existing £200bn of assets purchased by a further £50bn to £100bn.

The first £200bn of QE pushed down long-term interest rates – but at the cost of CPI inflation rising by 0.75 to 1.5 per cent, the Bank estimates.

September’s CPI inflation figures – which came in at 5.2 per cent – were not known when the MPC was making its decision, though it did expect inflation of above five per cent.

However, the MPC believed “domestically generated inflation remained contained. Inflation was likely to fall back sharply in 2012” as temporary factors fall out of the figures.

The minutes said low wage growth and “weak consumer spending, which was only a little higher in the second quarter of 2011 than at its trough two years earlier” influenced the MPC’s view that inflation will near the two per cent target in the medium term.