Bank of England policymakers voted 9-0 to leave QE program unchanged

The two doves on the Bank of England’s Monetary Policy Committee, Paul Fisher and David Miles, switched their position to back new governor Mark Carney in a 9-0 vote to keep the size of the quantitative easing program unchanged at 375 billion pounds…

 


Powered by Guardian.co.ukThis article titled “Bank of England policymakers voted 9-0 to leave QE unchanged” was written by Heather Stewart, for theguardian.com on Wednesday 17th July 2013 09.19 UTC

Bank of England policymakers swung behind the new governor, Mark Carney, and voted unanimously against extending quantitative easing at this month's monetary policy committee meeting.

David Miles and Paul Fisher, the two MPC members who had repeatedly backed Sir Mervyn King's calls for an extension of the deflation-busting policy, decided instead to switch their votes and support Carney's plan of leaving QE unchanged, amid signs that economic recovery was becoming "more firmly established".

However, the minutes also showed that the MPC plans to use an August deadline to examine its policymaking remit, set by the chancellor, to establish "the quantum of additional stimulus required and the form it should take". That suggests Miles and Fisher may simply have decided to await next month's meeting before pushing for a fresh round of QE.

George Osborne has asked the Bank to announce next month whether it would like to adopt the policy of "forward guidance" – announcing how it expects interest rates to move to influence market expectations.

The MPC made a first foray into forward guidance at its meeting a fortnight ago, taking the unusual step of issuing a statement to financial markets warning them that interest rates were unlikely to rise.

When Carney was governor of the Canadian central bank, he pledged to keep interest rates low for 12 months, helping to calm fears in financial markets that borrowing costs were about to rise. However, some MPC members are known to be unenthusiastic about the idea.

July's meeting took place during the so-called "taper tantrum", when the Federal Reserve chairman Ben Bernanke's plan to phase out its programme of QE prompted share prices to plunge and bond yields to spike, pushing up interest rates across many economies.

The minutes show that MPC members were concerned by the "surprising" rise in UK government bond yields that followed Bernanke's remarks, and were keen to dampen expectations that interest rates were set to rise. In April, markets had not been expecting rates to go up until late 2016; by the time the MPC met, that had been brought forward to mid-2015.

"UK developments, while broadly positive, had not been enough to warrant such an upward move in the near-term path of Bank Rate," the minutes said.

Persistently weak real income growth – with high inflation more than outweighing paltry pay deals – was also highlighted as a risk to the recovery by MPC members: "Real income growth had remained weak … and it was unlikely that consumption growth could continue at its current rate without some rise in real incomes."

However, the MPC added that "developments in the domestic economy had generally been positive" and broadly in line with the moderately upbeat picture presented by the previous governor, Sir Mervyn King, at his final inflation report press briefing.

For "most members", therefore, "the onus on policy at this juncture was to reinforce the recovery by ensuring that stimulus was not withdrawn prematurely" – subject to keeping inflation on track to hit the government's 2% target.

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