MPC minutes reveal more QE likely in February
Wednesday, 21 December 2011 10:46
The minutes from December’s meeting of the Bank of England’s Monetary Policy Committee (MPC) has been released and reveal that an extension of the asset purchase programme is likely early in 2012.
The minutes show that the consensus was that it is too early to assess the effects of the £75 billion worth of quantitative easing that was issues in October taking the total up to £275 billion because “Assessing the effects of the current programme was complicated by the volatility in financial markets.”
The minutes concluded by saying that: “Some members continued to note that the balance of risks to inflation in the November Inflation Report projections meant that a further expansion of the asset purchase programme might well become warranted in due course.”
Howard Archer, Chief UK & European Economist said: “The fact that all nine MPC members favoured sticking to the current QE path at their December meeting suggests that they are likely to delay acting again until February.”
It seems that the MPC believe they need to assess what is happening with underlying inflation before judging whether the markets can deal with any more quantitative easing at this stage.
Mr Archer added: “We strongly expect the Bank of England to announce a further £50 billion of QE in February, and believe that a further £50 billion portion is highly likely to follow in the second quarter (most probably May).
“It is very clear that interest rates will not rise for many, many months to come – we do not expect any hike before the second half of 2013 and it currently looks eminently possible that the Bank of England could keep interest rates down at 0.50% through to 2014, noted Mr Archer.”
Read the latest inflation report.
Other important points made by the MPC that are detailed in the minutes include:-
Sterling
The sterling effective exchange rate had depreciated by around one per cent on the month.
The international economy
There had been modest upside news on the near-term prospects for the United States but a further deterioration in euro-area indicators and continued slowing in emerging market economies.
Inflation and UK household income
The Committee continued to expect that households’ real incomes would return to growth in 2012, which would provide some support to consumption spending. That would be consistent with the Committee’s projection in its November Inflation Report for a recovery in activity in the second and third years of the forecast.
GDP and the economic outlook
The CIPS/Markit activity indices for November had provided a further indication that output was likely to be broadly unchanged in the fourth quarter. Their forward-looking components were consistent with an expectation of broadly flat GDP in the first quarter of 2012 too.
The Euro
The substantial challenges faced by the euro area posed a threat to the outlook for the United Kingdom. The worst risks had not so far crystallised, but the possibility of their doing so was reflected in continuing strains in bank funding markets and volatility in financial markets more generally.
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