Bank of England split over monetary policy

18 November 2009

The multi-billion pound question of quantitative easing split opinion within the Monetary Policy Committee (MPC) in its November meeting, according to minutes released today.

Seven out of the nine MPC members voted to increase the radical quantitative easing scheme by £25 billion - taking the total amount of new money created from £175 billion to £200 billion.

However, another member, David Miles, called for a £40 billion rise to “provide greater insurance to the downside risks to growth and inflation” while Spencer Dale, the central bank’s chief economist, believed there should be no increase at all.

Dale claimed that more money pumped into the economy might fuel "unwarranted increases in some asset prices that could prove costly to rectify”.

Despite the division over quantitative easing, all the members agreed to keep the interest rate at a record low of 0.5%.

Economists believe the MPC could take further monetary policy action in the months ahead. Howard Archer, chief UK economist at IHS Global Insight, says: “The door is clearly not shut on further quantitative easing, particularly given the major uncertainties and risks surrounding both the growth and inflation outlooks.

“Nevertheless, with the economy almost certainly returning to growth in the fourth quarter and inflation now moving back up and set to spike up markedly over the next few months, we suspect that November marked the final extension to the quantitative easing programme unless the economy suffers a major relapse in 2010.”

Jonathan Loynes, chief European economist at Capital Economics, adds: “The overall tone of the minutes is still fairly dovish, with the discussion identifying a number of factors - including “a large fiscal consolidation” - which will act as a restraint on domestic demand.”

The MPC has next agreed to review the quantitative easing programme in February alongside the next Inflation Report.

For the first time in an MPC meeting, members also openly discussed the merits of cutting the interest rate on bank deposits, which they said “might be a useful tool in some circumstances, and therefore should be available in future”.

Other figures show the headline rate of inflation rose to 1.5% in October from 1.1% the previous month.

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