MPC considering future QE

Sarah Davidson

May 10, 2012

Members also voted unanimously to keep the Bank of England’s base rate at 0.5%.

The outlook on inflation in the near-term was for a less rapid fall than originally thought at the time of the August Inflation Report projections.

Most members thought the decision about asset purchasing was relatively straightforward but some of these members felt that additional stimulus was more likely than not to be needed in due course.

One member, however, felt this month’s decision was more finely balanced, since it was not clear that the uncertainties about the medium-term outlook would be resolved to any great extent in the coming months.

And given the weakness in demand a good case could be made at this meeting for announcing more asset purchases.

Martin Beck, UK economist at Capital Economics, meanwhile predicted there is “a decent chance” of an interest rate cut in November.

And he added: “We also still expect another £50bn of asset purchases to be announced at November’s meeting and for quantitative easing to ultimately reach £500bn.”

The minutes noted that over the coming months the Committee would be able to gain further insight into the underlying paths of both supply and demand, which had been obscured by “transient factors” such as the unwinding of the diamond jubilee.

The effects of the Funding for Lending Scheme were described as “difficult to predict” given that it was still in its early stages.

But encouraging signs had begun to emerge as further reductions on rates had been announced by some banks on a selection of their lending products.

The Committee discussed the potential the scheme had to reduce funding costs and encourage the supply of credit, but set against that was the heightened uncertainty, stemming especially from the euro area and the cautious attitudes of households and businesses which could limit the demand for credit.

But this was tempered with the thought that banks would need time to review fully their lending plans and products, and it was likely to be some while before there would be drawdowns on a significant scale.

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