MPC Unanimous on Quantitative Easing

The Monetary Policy Committee’s (MPC) meeting minutes in early October reveals that all nine policymakers voted in favour of further quantitative easing.

Richard Driver, analyst for Caxton FX, said: “The only positive here is that the MPC is giving a united front on QE [quantitative easing] and is clear about what needs to be done to get the UK economy back on track. The minutes show that fears for the UK’s economic outlook have risen significantly, as shown by the unanimous call for QE. Data out of the UK this month has not actually been too bad; the manufacturing and services sector growth figures for September were significantly better than expected. Concerns that forward-looking data suggests a further slowdown are prevailing however. There are signs that concrete progress on the eurozone debt crisis will be made this weekend, but there will be no magic wand solution and the UK remains vulnerable to financial tensions in Europe.

“Amid the context of weak growth and global financial turmoil, the QE call from the MPC was the right one. The fact that £100bn worth of asset-purchases were debated at the last MPC meeting (£75bn was the actual figure) suggests that there is plenty of scope for yet more quantitative easing here in the UK. The BoE’s [Bank of England] last quarterly inflation report gave a glowing assessment of the boost the last round of QE gave to UK GDP, so more asset-purchases early next year would not be a surprise,” he added.

The UK inflation figure was alarmingly high, said Driver: “UK headline inflation hit 5.2% in September, which represents a three-year high. The BoE is convinced the figure will come back down to 2.0% next year, but this spike in inflation may delay the MPC’s decision to introduce further asset-purchases. Such high inflation combined with such weak growth also highlights the threat of stagflation in the UK.”

Driver concluded: “Sterling suffered a knee-jerk slide on the news that the MPC voted unanimously for QE, but losses have largely been recouped. The minutes really just confirmed the market’s strong suspicions that the MPC acted assertively on QE and is happy to do so again if conditions dictate.”


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