More QE on the way if growth declines further
THE BANK of England stands ready to try to boost the economy with more monetary stimulus, the minutes of the most recent Monetary Policy Committee (MPC) meeting showed yesterday, as inflation is at last starting to fall.
The committee voted by a margin of eight to one against re-starting the quantitative easing (QE) programme, but “for several members, the decision… was finely balanced.”
“Further monetary stimulus could be added if the outlook warranted it,” the minutes concluded.
Over the past month the economy has been expanding, according to the Banks’ agents, but only very slowly.
Consumer demand is rising, private sector investment intentions point to a small rise in capital spending over the coming year, and goods export growth remains strong, “particularly to emerging markets,” the report said.
However, construction output contracted again, private sector employment levels are set to remain flat and some businesses have revised down their growth forecasts for the year.
Despite this weakness and risks from the Eurozone, the MPC was in part constrained by high inflation, which “appeared likely to remain elevated over the near term.”
Furthermore, “by the end of the forecast period, the risks of inflation being above or below the target were broadly balanced,” the MPC believes, limiting the action it can take to raise demand.
Yet not all economists believe extra QE will help raise GDP. “We have our reservations about the effectiveness of QE – gilt yields are already depressed at record lows and, in an uncertain environment, the impact on asset prices is likely to be limited,” said Nida Ali from Ernst and Young’s Item Club.
“The Bank needs to think of other ways to ease monetary policy.”