RTTNews - All nine policymakers of the Bank of England wanted to increase the size of the asset purchase programme, but they were split over the amount to be increased, the minutes showed Wednesday.
Six members of the MPC voted to raise the size of asset purchases by GBP 50 billion, while the other three members sought a GBP 75 billion increase to GBP 200 billion. The meeting was held on August 5 and 6. The central bank held the key interest rate unchanged at 0.5% in this meeting.
Governor Mervyn King, Tim Besley and David Miles were the three members who preferred a larger increase in the asset purchase programme.
The MPC agreed to spread the additional purchases of GBP 50 billion evenly over three months so that their completion would coincide with the preparation of the November Inflation Report projections.
The aim behind asset purchases was to boost nominal spending to ensure that it was consistent with meeting the 2% inflation target in the medium term. There were arguments favoring a considerable expansion of the programme. The potential adverse consequences of adding another large monetary stimulus might be less severe than the possible costs of acting too cautiously, the minutes showed.
Accordingly, insufficient stimulatory measures could cause inflation to stay below the target for a sustained period of time, depressing inflation expectations.
Meanwhile, there was counter arguments for a moderate expansion of quantitative easing measures. The substantial injections of liquidity would result in unwarranted increases in some asset prices that could prove costly to correct or in inflation expectations moving upwards. Further, if the asset purchases proved to be more effective than expected, an early withdrawal of some of the stimulus might prompt a sharp increase in market interest rates that was unwarranted by the economic outlook.
It was more likely than not that inflation would temporarily fall below 1% in the autumn, forcing the Governor to write an open letter to the Chancellor of the Exchequer. However, base effects from movements in prices of petrol a year earlier and the scheduled reversal of VAT reduction would possibly mean that inflation would rise back up again around the turn of the year.
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