MPC Minutes Show Three-way Split on Quantitative Easing

The minutes from latest meeting of the Bank of England’s monetary policy committee (MPC) have revealed a three-way split over the size of the extension to the asset purchase programme. Seven members of the committee decided in favour of adding a further £25bn to the quantitative easing (QE) budget. However, David Miles voted for an extra £40bn to be added in order to provide greater insurance against the downside risks to growth and inflation. Conversely, Spencer Dale believed that the risks facing the UK economy were best balanced by maintaining the current level of the asset purchase programme at £175bn.

Duncan Higgins, senior analyst at Caxton FX, said: “The news is inconclusive. With one person on either side of the QE decision, there is little fuel for those who believe the BoE may now have concluded its asset purchase scheme. Neither does it look any more likely that there will be an increase to the budget in February when the current £200bn is due to run out.”

The report also shows that, while the members unanimously voted to hold rates at 0.5%, the committee did discuss cutting the interest rate in order to ease monetary conditions further. Although they concluded that such a move would not have a significant impact, they agreed that it may yet be a useful tool for the future.

Higgins added: “Currently the market has taken the pound slightly lower, with investors picking up on dovish comments that reiterated the slow recovery in the level of economic activity. Despite data in the manufacturing and services sector showing above-expectation improvement, the BoE is clearly remaining cautious. There are still significant headwinds which could impede recovery.”

Having dropped around 40 pips against the euro on the immediate release of the data, the pound has made a slight recovery and currently trading steadily against the US dollar.


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