King in minority over QE increase

Sam Cordon

April 17, 2013

King, Paul Fisher and David Miles all voted for an increase to the size of the asset purchase programme by a further £25bn which would take the total value to £400bn.

Those in favour of the increase said a further extension would support other policies which were being deployed.

The minutes said: “Further asset purchases, by lowering longer-term interest rates and supporting a range of asset prices, could facilitate a smoother path towards the economy’s new equilibrium, help prevent a more

persistent reduction in spending, and thereby avoid potentially lasting damage to productive capacity.”

Those voting to keep quantitative easing at £375bn, Charles Bean, Paul Tucker, Ben Broadbent, Spencer Dale, Ian McCafferty and Martin Weale, argued that monetary policy was “already highly stimulatory and the benefit of past actions would continue to be felt”.

Outlining the arguments against the rise, the minutes said: “The first rise in Bank Rate was not fully priced into market rates until well into 2016; inflation was above the 2% target, was likely to rise further later this year, and was expected to remain elevated for an extended period.

“Medium-term inflation expectations had drifted upwards in recent months and a further easing might exacerbate this movement and prompt renewed weakness in sterling with implications for wages and prices. In addition the extent to which supply capacity would respond to greater demand would depend on how quickly capital and labour could be redeployed from declining to growing businesses.”

The majority argued the issue was better addressed by policies to improve the working of credit markets.

But it was noted that all members saw some merit in each set of arguments but weighted them differently in forming their view about the best monetary policy setting to bring inflation back to the target in the medium

term while continuing to support output and employment.

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