MPC minutes show Posen's change in stance on QE

Group Business Editor

Thursday 19 April 2012

LONG-time Monetary Policy Committee dove Adam Posen dropped his campaign for an immediate further increase in stimulus earlier this month, it emerged yesterday.

Custom byline text:

Ian McConnell

Mr Posen's change of stance, and a slightly less dovish overall tone on inflation in the minutes of the Bank of England committee's April 4 and 5 meetings pushed the pound to a 19-month high against a basket of currencies, making strong gains against the euro and dollar.

Sterling jumped through the $1.60 mark, touching an intra-day high of about $1.6041. It was last night trading at around $1.6025 in New York – up nearly one cent on its close in London on Tuesday.The euro was last night trading around 81.85p, down more than half a penny on its Tuesday close in London.David Miles continued to vote unsuccessfully to increase the scale of the Monetary Policy Committee's quantitative easing programme by £25 billion to £350bn at the end of the April meeting, the minutes revealed.This QE programme is aimed at stimulating the economy by boosting money supply through the purchase of Government and corporate bonds using central bank reserves.Mr Posen has stood out in recent times as the MPC member who has pushed most for further monetary stimulus, and his change of stance was thus viewed as significant by financial markets.This change meant Mr Miles voted alone for immediate further monetary stimulus.All nine MPC members voted to hold UK base rates at a record low of 0.5%, where they have been since March 2009.Detailing the MPC's discussions about inflation risks, the minutes state: "There was a risk that inflation would fall more slowly than assumed in the February inflation report projections, and the recent flow of data provided some support for this view. With underlying activity recovering, there was a greater chance than before that above-target inflation would persist into the medium-term, whether because of elevated external price pressures, a rebuilding of margins, or a rise in costs."However, the minutes highlight MPC members' belief that there is little to suggest at this stage that the medium-term outlook for inflation has changed and also rehearse the arguments for loosening policy further. They state: "While the news about the near-term path for inflation was unwelcome, there was little solid evidence yet that the balance of risks to inflation in the medium term had changed. "There was a large degree of slack in the labour market, and there was a risk that business and household sentiment could be further dented either by reports of the economy re-entering recession or by deterioration in the situation in the euro area."They add: "Moreover, persistently weak growth might impair the future supply capacity of the economy through hysteretic effects: that risk could be attenuated by a more aggressive loosening of policy in the near term. Should the possibility of inflation being above target in the medium term increase, the committee could subsequently withdraw some of the monetary stimulus."

Commenting & Moderation

We moderate all comments on HeraldScotland on either a pre-moderated or post-moderated basis. If you're a relatively new user then your comments will be reviewed before publication and if we know you well then your comments will be subject to moderation only if other users or the moderators believe you've broken the rules, which are available here.

Moderation is undertaken full-time 9am-6pm on weekdays, and on a part-time basis outwith those hours. Please be patient if your posts are not approved instantly.

MPC minutes show Posen's change in stance on QE

Commenting & Moderation

MOST READ

SPONSORED LINKS

MOST COMMENTED