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BoE’s MPC committee discussed further quantitative easing measures

Posted by smeddum on July 24, 2010

By Elliot Wilson
22nd July 2010


Bank of England policymakers discussed pumping more cash into the economy for the first time since February on fears that growth could be hit by Chancellor George Osborne’s austerity Budget.

Records of the Bank’s latest policy meeting highlight rising concern about the fragility of the economic recovery and worries that Britain could be heading for a double-dip recession.

During a two-day meeting on July 7 and 8, members of the cen¬tral bank’s rate-setting Monetary Policy Committee first entertained – and then dismissed – the notion of ‘a modest easing in the stance of monetary policy’, in other words quantitative easing.

Money for nothing: The Bank OPf England has pumped billions into the UK economyMoney for nothing: The Bank OPf England has pumped billions into the UK money markets 

Minutes just released of that meeting highlight concerns within the MPC that economic conditions ‘deteriorated’ during June, and that softening GDP would exert downward pressure on inflation.

Committee members are torn between reining in prices and staving off the damaging effects of deflation. Stagnant consumer and factory prices have plagued Japan’s moribund economy for the past 20 years and many fear Britain is heading the same way.

Yet the few tools at the MPC’s disposal are worryingly blunt. The committee voted seven to one at its recent meeting to keep interest rates unchanged at 0.5pc, fearing that any rate hike would kill Britain’s faltering recovery stone dead.

The only interest rate hawk, yet again, was Andrew Sentance, an external expert who argues that core inflation, currently running at more than 3pc, is the greatest dan¬ger to the underlying economy.

Lacking that fiscal instrument, the MPC has turned its attention back to QE, hoping that a fresh injection of state capital will keep the economy ticking over and con¬vince banks to lend again.

Economists said the MPC was merely preparing the groundwork for a reintroduction of QE in August.

That will likely coincide with a downward revision of the central bank’s 2010 GDP forecast, to between 1pc and 1.5pc from the current 3.5pc.

‘We are being softened up,’ said Danny Gabay, of London-based Fathom Financial Consulting. ‘In August the BoEwill need to change their forecast downward and they are likely to reintroduce QE.’

The key question will then be the size of a second QEprogramme. Analysts reckon it could be in excess of the previous £200bn.

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