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Friday 20th of November 2009
November 18, 2009    

November minutes show Bank split over QE increase

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by Kay Murchie

Minutes of the Bank of England’s November meeting have been released today and have revealed that the Monetary Policy Committee (MPC) voted unanimously this month to keep interest rates at the historic low of 0.5%.

However, the minutes show that the MPC was split three ways over whether to increase its quantitative easing (QE) programme.

Seven members of the nine-strong committee voted for the £25 billion expansion of QE, while David Miles called for QE to be increased by £40 billion in “order to provide greater insurance to the downside risks to growth and inflation”.

However Spencer Dale, the Bank’s chief economist, voted for no increase at all, arguing that more funds injected into the economy might result in “unwarranted increases in some asset prices that could prove costly to rectify.”

The minutes said: “Most committee members favoured an extension of the asset purchase programme. That would reduce the margin of spare capacity and bring inflation back to target more quickly than otherwise, so that the risks of inflation being above or below the target in the medium term were brought closer into balance.”

“Additional asset purchases would support household and business spending, attenuating downside risks, including from the ongoing weakness in the banking system and the anticipation of further fiscal consolidation. Moreover, some members thought that the downside risks to activity in the near term were somewhat greater than implied by the inflation report projections,” added the minutes.

In related news, official figures revealed yesterday show that Consumer Price Inflation (CPI) rose for the first time in eight months to 1.5% in October from a 5-year low of 1.1% in September.

The rise was not unexpected after a sharp fall in transport costs last year was not repeated this year and because fuel prices had seen record falls this time last year.

The rise means inflation continues to be below the Bank of England’s target of 2%

Meanwhile, Retail Price Inflation (RPI), which includes mortgage costs and is used as the basis for many wage deals, rose from -1.4% in September to -0.8% in October.

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