Bank of England policy officials hint at more stimulus measures

Group Business Editor

Thursday 20 September 2012

SOME members of the Bank of England's Monetary Policy Committee believe additional monetary stimulus is "more likely than not to be needed" to boost economic activity and prevent annual consumer prices index inflation undershooting the 2% target two years out.

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Ian mcconnell business editor

This view was revealed with the publication yesterday of minutes from the MPC's September meeting.

It will fuel expectations the MPC will increase the scale of its quantitative easing (QE) programme beyond the current £375 bil-lion in coming months.

And it appears to point to a continuing possibility the MPC might yet cut UK base rates further from their record low of 0.5%, if members can satisfy themselves that the benefits of such a move would outweigh potential downsides in terms of the knock-on impact of a hit on banks' interest-rate margins.QE is aimed at stimulating activity by boosting money supply through the purchase of Government and corporate bonds using central bank reserves.The MPC, chaired by Sir Mervyn King, increased the scale of QE by £50bn to £375bn in July. This programme of £50bn of extra purchases is due to be completed by November.The UK has tumbled into a double-dip recession. It has now shown three straight quarters of contraction.Although some members believed further monetary stimulus was likely to be needed, and one thought a "good case" could be made for another rise in QE two weeks ago, the MPC voted nine-to-nil on September 6 to hold base rates at 0.5% and keep QE at £375bn.Detailing MPC members' thoughts, the minutes state: "All members agreed that it was appropriate at this meeting to continue with the asset purchase programme announced at the committee's July meeting. For most members this decision was relatively straightforward, although some of these members felt additional stimulus was more likely than not to be needed in due course, while others saw the risks to inflation in the medium-term as being more balanced around the target. "Over the next few months, the committee would gain further insight into the underlying paths of both supply and demand. It could also take stock of the impact of past and prospective policy actions, here and abroad."The minutes add: "For one member, the decision this month 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."

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Bank of England policy officials hint at more stimulus measures

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