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Bank Of England Split On QE, Minutes Show

Bank Of England Split On QE, Minutes Show
4/18/2012 7:12 AM ET

Bank of England's Monetary Policy Committee (MPC) decided to maintain the size of the asset purchase programme through a split vote as one member called for an increase in stimulus, the minutes of the meeting showed Wednesday.

Eight members of the committee, including Governor Mervyn King, voted to retain the quantitative easing at GBP 325 billion. While Adam Posen gave up his call for more stimulus, David Miles continued to seek an increase in the asset purchase programme by GBP 25 billion to GBP 350 billion.

At the same time, the committee unanimously decided to maintain the interest rate at a historic low of 0.50 percent.

"For most members, there was no sufficient reason to change either Bank Rate or the quantity of asset purchases agreed at the Committee's February meeting," the minutes of the meeting held on April 4 and 5 showed.

According to Miles, the balance of risks continued to warrant an expansion of the asset purchase programme this month, although the decision was finely balanced.

The MPC is likely to pause the quantitative easing next month when the additional round of bond purchases will be exhausted.

IHS Global Insight's Chief U.K. Economist Howard Archer said further quantitative easing in May is looking ever less likely, although it cannot be ruled out. Much could yet depend on the underlying tone of the first-quarter GDP data out next week.

The MPC did not rule out that the publication of official data may show GDP falling for three successive quarters. Nonetheless, members said the economy appeared likely to be expanding, albeit only modestly, in the first half of the year.

Yesterday, the International Monetary Fund raised 2012 growth outlook for the U.K. to 0.8 percent.

Elsewhere, data released by the Office for National Statistics showed that the unemployment rate dropped in the three months to February from a 16-year high. The jobless rate was 8.3 percent. The claimant count in March was 1.61 million, up 3,600 on the previous month.

Members agreed that there was a risk that inflation would fall more slowly than assumed in the February Inflation Report. Should the possibility of inflation being above target in the medium term increase, the committee could subsequently withdraw some of the monetary stimulus, the minutes revealed.

Elsewhere, BoE Deputy Governor Paul Tucker said inflation remains uncomfortably above target. The MPC will guide inflation back to target in the medium term, but in the near term there is considerable uncertainty about the path that it will follow.

by RTT Staff Writer

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