The minutes of the Bank of England’s Monetary Policy Committee’s September rate-setting meeting show that the nine member committee voted unanimously to keep QE at £375 billion and base rate at 0.50 per cent.
The minutes also reveal that the medium-term outlook for inflation has got worse since the bank's last inflation report in August.
Euro debt crisis
The MPC discussed the euro debt crisis and noted that trading was down as it normally is in August, and that yields on Spanish and Italian bonds had fallen as the markets anticipated the actions of the European Central Bank (ECB) at its September rate-setting meeting.
Funding for Lending Scheme (FLS)
The MPC said that it was still too early to assess the impact of FLS “but there had been encouraging signs about the impact the Scheme was having on lending rates.”
The MPC said that both mortgage rate increases and decreases had been seen so far.
The MPC said that on the whole data from the US had been positive with jobs data showing a 160,000 increase, higher than average.
However, the MPC expressed concern over the US debt mountain and inability of politicians to agree how to reduce the debt mountain.
The MPC said that this gridlock “alongside developments in the euro area, was likely to weigh on sentiment and demand in the second half of the year.”
During the month UK GDP was revised up from a contraction of 0.7 per cent to 0.5 per cent, due to smaller contractions in the construction and manufacturing sectors.
The MPC expects to see an increase in economic activity in the third quarter as “the Diamond Jubilee effect unwound, alongside a possible small boost from the Olympics.”
Inflation rose to 2.6 per cent in July, but since the MPC meeting official data out yesterday shows that it dropped to 2.5 per cent as measured by the consumer prices index (CPI) in August.
However, the MPC said that the outlook for inflation had deteriorated since its last inflation report in August.
Jobs and unemployment
The MPC expressed its surprise that new jobs were being created and that unemployment is continuing to fall.
An extract from the minutes said: “The unemployment rate had fallen to 8% in the second quarter, its lowest level for around a year, and employment was estimated to have risen by more than 200,000, with a rise in permanent employees accounting for more than half the increase. It remained difficult to reconcile this with the persistent weakness in output.”
The MPC had a mixed view on when to add to the asset purchase programme but “all members agreed that it was appropriate at this meeting to continue with the asset purchase programme announced at the Committee’s July meeting.” One member said there was a case for adding to the QE programme immediately.
No specific comments were made about base rate and the MPC voted unanimously to leave base rate at 0.50 per cent for a 43rd consecutive month.