SOME members of the Monetary Policy Committee appear poised to vote for further stimulus to prop up the flagging UK economy, and economists believe that Bank of England Governor Sir Mervyn King is among them.
Minutes of the Bank committee's January 11 and 12 meeting, published yesterday as official data revealed the UK economy contracted by 0.2% in the fourth quarter of last year, heightened expectations that the nine-strong committee would increase the scale of its quantitative easing programme beyond £275 billion as early as next month.
This QE programme, implemented through the purchase of Government and corporate bonds using central bank reserves, is aimed at boosting money supply and stimulating economic activity.
The MPC voted nine-to-nil two weeks ago to keep QE at £275bn and hold UK base rates at their record low of 0.5%, where they have been since March 2009.
However, the minutes revealed some MPC members believed "the risks of undershooting the target meant that a further expansion of asset purchases was likely to be required".
Annual UK consumer prices index inflation dropped from 4.8% in November to 4.2% in December. Although it remains above the 2% target set for the Bank of England by the Treasury, the MPC expects a further sharp fall and focuses on the likely inflation rate on a two-year time horizon.
Detailing the views of those members who believed a further boost to QE was likely, the minutes say: "There was no compelling need to increase the scale of the programme of asset purchases before completing those already announced."
The purchases involved in the £75bn increase in the scale of the QE programme to £275bn, which was voted for in October, are due to be completed by next month.
The minutes signal that not all MPC members were convinced two weeks ago that there would be a need for a further increase in QE.
They state: "For other members, the risks to inflation were more finely balanced, and it was less clear that inflation would fall below the target in the medium term."
However, economists believe Sir Mervyn is among those seeing a likely need to boost the scale of monetary stimulus.
Sir Mervyn said in a speech on Tuesday night: "With inflation falling back and wage growth subdued, there is scope for interest rates to remain low, and, if necessary, for further asset purchases, to prevent inflation falling below the 2% target."
Vicky Redwood, chief UK economist at consultancy Capital Economics, said: "Admittedly, members remain split on whether further asset purchases are needed, with some members still not convinced that inflation will fall below the target in the medium term.
"However, there were clear signs that at least some will vote for more QE next month... Mervyn King's speech suggests that he is in this camp. Indeed, we still expect more QE to be announced next month."
Howard Archer, chief UK economist at consultancy IHS Global Insight, also thinks Sir Mervyn is in the camp believing further QE is likely to be needed.
Mr Archer said: "We have little doubt the Bank of England will announce at least a further £50bn of QE in February, and believe that a further £50bn portion is highly likely to follow in the second quarter."
He declared he did not expect UK base rates to rise before the second half of 2013, and added that it "looks eminently possible the Bank of England could keep interest rates down at 0.5% through to 2014".
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