MPC members hold position on QE

Sam Cordon

March 20, 2013

The minutes of March’s MPC members’ meeting on 6 and 7 March revealed that the Governor of the Bank of England, Paul Fisher and David Miles all maintained their positions on QE voting to increase the size of the asset purchase programme by a further £25bn to a total of £400bn.

Meanwhile Charles Bean, Paul Tucker, Ben Broadbent, Spencer Dale, Ian McCafferty and Martin Weale all voted in favour of maintaining quantitative easing at its current level.

Regarding Bank Rate, the Committee voted unanimously in favour of maintaining the base rate at 0.5%.

The arguments discussed in favour of a further extension of the asset purchase programme centred around inflation expectations remaining relatively stable; wage growth remaining weak; a degree of slack in the economy; and the potentially positive response of supply capacity to increased demand.

The minutes said: “Output had been depressed, at least in part, because of a reduction in household and business expectations of future income growth, coupled with a desire to reduce debt levels.

“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 destruction of productive capacity and increases in unemployment.”

Those against the further extentions of the programme argued monetary policy was already highly accommodative and the benefit of past actions would continue to be felt.

Inflation was above the 2% target and was likely to stay above it for an extended period and there was a risk that it could lead to inflation expectations drifting upwards with adverse consequences for wage and price setting behaviour.

The minutes said: “Further monetary stimulus might increase that risk. It might also lead to an unwarranted depreciation of sterling if it were misinterpreted as a lack of commitment to maintaining low inflation in the medium term.

“Finally at the current juncture there were limits to what further asset purchases could be expected to achieve to support output when some banks and households were reducing their indebtedness, and when the economy needed to

rebalance away from public and private consumption towards investment and trade.”

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