Worries over QE raised at King’s final meeting

Julian Harris
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LORD King’s bid to bolster the Bank of England’s stimulus efforts was voted down at his last policy-setting meeting as governor, according to minutes of the June meeting.

Published yesterday, the minutes also revealed that some members of the Bank’s nine-man monetary policy committee (MPC) are increasingly sceptical about the use of further quantitative easing – known as QE.

For the fifth straight month, King voted for an extra £25bn in QE, which would bring the Bank’s total asset purchases to £400bn. He was supported by David Miles, who has pushed for more QE since last November, while Bank deputy governor Paul Fisher also voted for an extra £25bn.

But the other six members voted to keep policy as it stands, with QE limited at £375bn and interest rates anchored at their historic low of 0.5 per cent.

Of those six, some feel that QE remains an appropriate tool if the UK recovery should show signs of faltering.

“Events over the month had demonstrated the sensitivity of financial markets to changes in policy expectations,” the minutes said.

“For some of these [six] members... those events illustrated the likely effectiveness of asset purchases should they be needed in the future.”

Others are less convinced, however, warning over potential side-effects and troubles involved with selling the assets back to the markets when the time should come.

“For the others, the benefits of further asset purchases were likely to be small relative to their potential costs,” it said. “Further purchases could lead to an unwarranted narrowing in risk premia and complicate the transition to a more normal monetary policy stance.”

King steps down at the end of the month. His replacement, Mark Carney, favours stimulus methods, yet may opt to keep with the current stance at first, with the UK economy showing signs of repair.