MERVYN KING voted to expand the Bank of England’s gilt-buying programme to £200 billion (€232 billion) earlier this month, but failed to convince the majority of committee members who instead backed raising asset purchases to £175 billion.
It was the first time Mr King, the bank’s governor, had argued for an easier monetary policy than a majority of his colleagues on the monetary policy committee, said economists, who noted it as a signal of concern about the durability of the nascent recovery.
According to the minutes from the monthly interest rate-setting meeting, released yesterday, Mr King and two other Monetary Policy Committee (MPC) members thought there was a case for stepping up purchases above £175 billion, while the remaining six members supported the £50 billion increase. But the minutes made it clear there was scope for a further boost to asset purchases if inflation did not remain within the government’s target.
The committee will monitor the effects of the expanded programme and reconsider the issue in November before publication of the next quarterly inflation report.
In particular, the MPC is concerned that, despite recent encouraging signs in official data and in forward-looking business surveys, the recovery may not be sustainable in the longer term. Not only are credit conditions tight – a factor limiting spending – but public- and private-sector debt levels remain high and concerns about job security are likely to encourage saving.
“The bottom line is that the minutes send a very clear signal that the MPC stands ready to do more if necessary,” said Colin Ellis, economist at Daiwa Securities. At the moment, the MPC is still firmly focused on shoring up demand.”
The minutes show that those arguing for a larger boost to quantitative easing are more concerned about the risks of doing too little than those of doing too much. – (Copyright The Financial Times Limited 2009)
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