Bank of England policymakers see no case at the moment for increasing monetary stimulus before February, despite a rise in the chances of a worst-case outcome for the euro zone crisis over the past month.
Minutes to the Bank's November 9-10 rate-setting meeting, published on Wednesday, showed that all nine members of the Monetary Policy Committee backed maintaining their target level of quantitative easing asset purchases at 275 billion pounds after October's unexpected 75 billion pound increase.
This came as a slight surprise to some economists, who had seen a good chance that one or two members would call for an immediate further increase in quantitative easing, after considering up to 100 billion pounds of purchases in October.
I thought we'd see some dissenting votes from Adam Posen and perhaps one other for more QE, said RBS economist Ross Walker. Policy wise, there's maybe greater clarity in the sense that February is now looking more likely and anything before February is much less likely.
Looking further ahead, policymakers were split on the likelihood of a further increase when these purchases are completed by the time of February's MPC meeting.
Some members noted 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, the minutes said. Some other members judged that the risks to inflation around the target were more balanced.
The risks of a worst-case conclusion to the euro zone's debt crisis had risen since the decision to restart the Bank's QE programme in October, the minutes said.
While the worst risks had not so far crystallised, the threat of their doing so had increased, exacerbating the already severe strains in bank funding markets and financial market s more generally, the minutes said.
A Bank survey on Tuesday showed that British financial market participants believed the risk of a major economic crisis was the highest since just before the collapse of Lehman Brothers in 2008.
NO MORE QE FOR NOW
But increasing QE now was not the answer. The MPC said the market could not tolerate a substantially faster pace of gilt purchases than the Bank was currently undertaking, and that there was little merit in fine-tuning due to the scale of medium-term economic uncertainty.
Official data last week showed that consumer price inflation eased in October for the first time since June, lending support to the Bank's expectation that inflation will hit its 2 percent target by the end of next year.
Moreover, in its latest Inflation Report the central bank paved the way for another cash boost to shore up the struggling economy, saying that the euro zone crisis had forced it to slash its growth and inflation forecasts.
Bank Governor Mervyn King said conditions had deteriorated since August and that Britain's economy could stagnate until the middle of next year.
A detailed breakdown of last week's forecasts, published on Wednesday, showed that the Bank expects annual growth of just 0.7-0.8 percent in the first nine months of next year, before picking up to 3 percent by the second half of 2013.
Inflation is expected to tumble from its current level of 5 percent to 1.7 percent by the last three months of next year, and then to sink further in 2013.
The minutes gave a similarly downbeat outlook. Third-quarter growth of 0.5 percent overstated the strength of the economy, and early indicators were pointing to stagnation in the fourth quarter, though not to a material contraction, they said.
However, not all members of the MPC are convinced that inflation will fall quite as fast as the forecasts suggest.
Deputy Governor Paul Tucker, in a rare speech on Tuesday, said the Bank's credibility would be sorely tested if inflation did not fall rapidly through next year, and flagged Britain's unusually weak productivity growth -- which means the economy may have little scope to grow without creating inflation.
This has also been a concern for Bank chief economist Spencer Dale and was referred to at greater length than before in the minutes' section on the policy outlook.
There were substantial uncertainties ... over how fast and how far inflation would fall, the minutes said. Nonetheless, a substantial margin of economic slack was likely to persist throughout the next three years.
(Reporting by David Milliken; editing by Patrick Graham)