Bank mulled even more QE in February
Two Bank of England policymakers voted for a bigger stimulus to the economy in February than their colleagues could support, minutes to the Bank’s February 8-9 meeting showed on Wednesday.
The news is likely to re-open the debate about whether the central bank will add further quantitative easing in May, especially as the minutes showed that other MPC members saw a case f or doing no further stimulus at all this month.
David Miles joined long-standing dove Adam Posen in voting for a £75bn boost, whereas the remainder of the MPC supported a £50bn increase to £325bn , in line with market expectations.
Miles and Posen argued there was a risk of a prolonged period of depressed demand causing inflation to fall materially below target in the medium term. Moreover, extra QE now would reduce the risk of a spiral of increasing unemployment and scrapping of capacity by firms.
However, most MPC members thought a bigger increase than £50bn “risked sending a signal that the Committee thought the economic situation was weaker than it was.”
The MPC members who voted for £50bn more QE were not wholly united.
“For some members … a case could be made for maintaining the stance of policy at this meeting,” the minutes said.
Both 50 billion pounds and 75 billion pounds would be sufficient to bring inflation back to its 2 percent target over the forecast horizon, the minutes said.
In its quarterly projections published last week, the central bank revised up forecasts to show inflation only just below target in two years time, at around 1.8 percent. It s growth forecast was broadly unchanged.
“Growth was likely to be volatile in the near term given the impact of one-off factors,” the minutes said, citing an extra public holiday to mark the Queen’s Diamo nd Jubilee celebrations.
“Thereafter growth should strengthen gradually, supported by a recovery in households’ real income growth and the expansionary stance of monetary policy,” the minutes said.
The MPC said there were substantial uncertainties around the path of inflation over the medium term, reiterating the position in the Inflation Report.
Upward risks included disruption to the supply of oil and gas and the risk of upward wage or price-setting behaviour
by companies against a backdrop of weak productivity growth.
“There were also risks to the downside that might result in demand growth being too weak to absorb the pool of spare capacity sufficiently.”
Last week Posen said that UK monetary policy and forecasts appeared to be on the right track. And in a speech in Glasgow late on Tuesday, deputy governor Charlie Bean forecast a return to modest growth, albeit after a sluggish first half to 2012.