BoE split 3 ways in Nov, majority still on fence
Bank of England policymakers split three ways again in November, with the majority standing ready to move policy in either direction, boosting expectations of no change in the monetary stance for some time to come.india Updated: Nov 17, 2010 19:19 IST
Bank of England policymakers split three ways again in November, with the majority standing ready to move policy in either direction, boosting expectations of no change in the monetary stance for some time to come.
Sterling rose after minutes from the November 3-4 Monetary Policy Committee meeting, published on Wednesday showed the same vote as in October when one wanted more stimulus, another wanted a rate hike and the rest opting for unchanged policy.
There had been some speculation one or more members of the MPC would join the call for a resumption of quantitative easing.
Inflation, which the BoE predicts will fall below its two percent target in two years, has held above the target this year and is expected to remain strong in 2011, making it harder for the central bank to sanction any further loosening of policy.
But fears over the growth outlook, especially ahead of big government spending cuts next year and given concerns about Europe's economic stability, mean the BoE must be careful not to choke off Britain's recovery by raising rates too early.
"The committee continues to believe that taking any decisive action at the moment would be premature and is content to 'wait and see'," said Nida Ali, economic advisor to the Ernst & Young ITEM Club.
Seven members of the nine-strong MPC voted to keep interest rates at a record low of 0.5 percent and maintain the central bank's 200 billion pound quantitative easing programme.
Andrew Sentance repeated his call for a quarter-point rate hike and Adam Posen argued that the economy needed 50 billion pounds more QE to alleviate the downside risks from the government's austerity drive.
<b>MAJORITY ON HOLD </b>
But the majority felt not enough had changed since their October meeting and the right action was 'to maintain the current highly expansionary stance of monetary policy'.
"They had differing views on the precise balance of risks to inflation in the medium term, but stood ready to adjust policy in either direction as necessary," the minutes said.
The central bank's latest forecasts, published last week, showed an unusually wide range of risks in both directions for the economy and inflation, making it more likely policy will remain unchanged for some time to come.
Inflation unexpectedly rose further above target in October -- hitting a four-month high of 3.2 percent and forcing BoE Governor Mervyn King to write an explanatory letter to finance minister George Osborne for the fourth time this year.
"I think the committee will find it very difficult to embark on a QE programme while the Governor is writing letters to the Chancellor," said Amit Kara, an economist at UBS.
The minutes betrayed signs that some members were becoming more worried recent high inflation outturns could filter through to higher inflation expectations.
But for now, most members felt it would be premature to tighten policy while a lot of spare capacity remained and medium-term inflation expectations were anchored.
It would also be premature, they argued, to loosen policy without clearer signs the economy was growing 'too slowly to use up the margin of spare capacity' when inflation was so high.
Separately, official figures showed an unexpected fall in the number of Britons claiming jobless benefits in October, suggesting the labour market is in slightly better shape than many had feared.