Member Article

MPC members vote for extra stimulus

The Bank of England’s Monetary Policy Committee voted in favour of maintaining quantitative easing at £325bn this month.

The voting overruled the governor Mervyn King, and three others, who voted to increase the extent of the stimulus.

Minutes of the June meeting noted that trade had been hit by the continuing eurozone crisis.

The MPC said: “The prospective weakening in demand growth in the United Kingdom’s major trading partners and the weakness of the CIPS/Markit export orders index suggested that net trade would continue to be weak in the second quarter.

“Business surveys were indicative of only broadly flat investment in the second quarter. And
the rate of real government consumption growth, which had provided an unexpected boost to GDP in the first quarter, was unlikely to be sustained.”

The recent announcement that inflation had dropped to its lowest level in two and a half years has provided further opportunity for QE.

Richard Driver, analyst for Caxton FX said: “These MPC minutes are a bit of a surprise, four votes in favour of QE is a major dovish shift within the Bank of England.

“Posen was almost nailed-on to join Miles in the dovish camp but the downward revision to Q1 GDP to -0.2% and further deterioration to the UK manufacturing sector has clearly spooked Paul Fisher and Mervyn King.

“Whilst the no-QE camp have retained a slight majority, the language of the minutes clearly point to more QE in the near future.

“With eurozone risks intensifying, inflation having unexpectedly eased and the MPC clearly very concerned with the UK’s ability to bounce back out of this double-dip recession, we are now fully expecting the pro-QE camp to have gained a majority by July’s meeting.

“The Bank of England is clearly looking to take a very active stance in protecting the UK economy now, which tells you all you need to know about the direction it sees the debt crisis heading in.”

This was posted in Bdaily's Members' News section by Tom Keighley .