2/22/2012 6:54 AM ET
(RTTNews) - Bank of England's Monetary Policy Committee (MPC) decided to lift the asset purchase programme by GBP 50 billion in February through a split vote as two members called for larger stimulus, the minutes of the meeting showed Wednesday.
Governor Mervyn King and six other policymakers voted to raise the size of quantitative easing (QE) by GBP 50 billion to a total GBP 325 billion, while David Miles and Adam Posen sought a GBP 75 billion increase.
Members assessed that a positive note from domestic and international economies pointing to a better-than-expected growth in the near term suggest that an increase of GBP 50 billion would represent a material monetary stimulus.
Further, a slight reduction in the immediate downside risks from the euro area due to the European Central Bank's long term loan offering supported the assessment.
The MPC discussed a case for larger stimulus, but a majority of policymakers observed that it was not clear that a larger stimulus was warranted at the current juncture.
"A larger increase risked sending a signal that the Committee thought the economic situation was weaker than it was," the minutes said.
The minutes suggests that the door remains open for more QE should the economy struggle for sustained growth over the coming month, said IHS Global Insight Chief U.K. Economist Howard Archer. He believes that additional QE is more likely than not.
Vicky Redwood, chief UK economist at Capital Economics observed that the appetite for more QE is a bit greater than last week's Inflation Report suggested. She said more QE will be necessary to stop inflation undershooting its target.
The nine-member committee unanimously voted to retain the interest rate at a historic low of 0.50 percent. The meeting was held on February 8 and 9.
Members said inflation would fall further, but the speed and extent of the decline is uncertain. At the same time, growth is seen to be volatile in the near term.
Nonetheless, growth is expected to strengthen gradually, underpinned by a recovery in households' real income growth and the expansionary stance of monetary policy.
Headwinds from the weak external environment, tight credit conditions and the fiscal consolidation were, however, likely to continue to depress spending, so that some margin of economic slack was likely to persist, the minutes showed.
Members saw upside risks to inflation, stemming from disruption to the oil supply and tension in the Middle East. They also considered the risks to the downside that might result in demand growth being too weak to absorb the pool of spare capacity sufficiently, leading inflation to fall materially below the target in the medium term.
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