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King's Call For More QE Defeated By 6 Votes: BoE Minutes

King's Call For More QE Defeated By 6 Votes: BoE Minutes

A call for additional stimulus by Bank of England Governor Mervyn King and two other policymakers were overturned by a majority of 6 members at a meeting that discussed the expansion of quantitative easing and cutting interest rates to boost the economy.

At the meeting held on February 6 and 7, King and Paul Fisher joined David Miles, in seeking an increase in asset purchases by GBP 25 billion to a total GBP 400 billion, the minutes showed Wednesday.

This was the fourth time that King's call was outvoted by the MPC as governor.

At the same time, members unanimously decided to reinvest the proceeds from GBP 6.6 billion of maturing bonds. All nine members voted to leave the interest rate unchanged at 0.50 percent.

The MPC noted that growth remained subdued and the economy continued to face a number of headwinds squeezing real incomes.

"A case could be made that, if further stimulus was required, policy interventions more targeted at particular frictions or market failures in the economy were likely to be more effective in current conditions than further asset purchases," the minutes said.

The minutes showed that while discussing additional asset purchases, a few members said "the degree of slack in the economy, and the likely positive response of supply capacity to increased demand, meant that higher output growth would not necessarily lead to any material additional inflationary pressure."

The three members judged that further asset purchases could help the process of rebalancing the economy, and avoid potentially lasting destruction of productive capacity and increases in unemployment.

Policymakers reviewed the range of possible monetary policy instruments other than gilt purchases that might be deployed should further stimulus be warranted. The committee agreed that it stood be ready to provide additional monetary stimulus if warranted by the outlook for growth and inflation.

The bank will finally decide more stimulus in the second quarter or shortly after Mark Carney takes over as BoE Governor in July, said IHS Global Insight's chief UK economist Howard Archer.

Elsewhere, the Agents' summary of business conditions showed that corporate credit availability improved gradually. However, credit conditions for smaller firms remain tight.

Further, the survey revealed that employment intentions among respondents continued to edge higher in business services but declined for consumer services, partly reflecting recent high street failures. Also, respondents are willing to invest more.

by RTT Staff Writer

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