Split decision over QE increase - Economy - News - Moneyfacts


Split decision over QE increase

Split decision over QE increase

Category: Economy

Updated: 19/08/2009
First Published: 19/08/2009

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Evidence of differing opinion on the scale of the recession within the Monetary Policy Committee (MPC) has come to light after minutes of its last meeting showed a split decision on the scale of a further increase in quantitative easing (QE).

The programme of quantitative easing was increased by £50 billion to £175 billion, which came as a surprise to many analysts, who had not foreseen such a rise.

However, it was not a unanimous decision, with some members of the MPC actually proposing an ever steeper increase, as the minutes showed.

"For most members, an increase in the size of the asset purchase programme of £50 billion to a total of £175 billion was warranted, while for others there was a case for a larger stimulus," the minutes detailed.

The Governor of the Bank of England, Mervyn King, and two other members of the Committee voted for the QE programme to be increased by £75 billion, taking the total value of £200 billion.

They were outvoted by the remaining six members of the MPC, meaning a 6-3 split decision in favour of a more modest increase of £50 billion.

The proposition to keep the bank base rate of interest at 0.5 per cent was voted for unanimously.

The minutes also revealed that the MPC expects inflation to be unusually volatile during the coming months, with a large fall in quarter three of 2009 predicted as a result of increases in domestic gas and electricity prices.

"It's clear that the bias on the MPC is to err on the side of risking higher inflation, an outcome they feel they can deal with, in order to avoid the deflation trap, which they would find much harder to tackle," said Ian Kernohan, economist at Royal London Asset Management.

"Expect more excitement next year, when they attempt a smooth exit from all this monetary largesse."

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