The BoE MPC voted unanimously in favor to seek governmental approval to conduct quantitative easing, the minutes from the February meeting showed, causing Gilt futures to rally. The MPC concluded that the CPI target was unlikely to be met in the medium-term by cutting rates alone (note that the February Inflation Report had CPI at 0.5% y/y two years ahead, based on market rate expectations) and that rate reduction could hurt banks and hence the economy as well, as well as the fact that further cuts might not be passed on. As expected, Blanchflower voted in favor of a 100 bp rate cut, against the majority for a 50 bp February cut. The outlook for BoE Gilt purchases underpinned Gilt futures which have rallied, while further BoE rate cuts are looking increasingly uncertain. The March 10-year Gilt future is up 45 ticks at 122.65, versus 122.30 just prior to the release of the minutes.

Meanwhile, The BoE MPC minutes show that quantitative easing operations might start earlier than previously expected. In line with the market consensus, we had expected the MPC to vote in favour of quantitative easing at next month's monetary policy meeting, but given this month's unanimous vote in favour of such operations, the BoE could start printing money to purchase assets earlier than in April, as we previously expected. The minutes also showed increased hesitation among MPC members over the benefits of further rate cuts. Still, we expect further reduction of the repo rate next month, which appear to be favoured by Governor King, and MPC members Bean and Blanchflower, given recent BoEspeak. However, the Committee is likely to be split over the vote and we acknowledge the increased uncertainty over the outcome of next week's rate decision.



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