RTTNews - All nine members of the Bank of England's Monetary Policy Committee unanimously decided to hold the key interest rate at a historic low and to continue with its quantitative easing measures, the minutes of the session showed Wednesday. The meeting was held on June 3 and 4.
The central bank had maintained the Bank Rate at 0.5%, the lowest since the the bank was established in 1694. Also, members decided to continue with the asset purchase scheme totaling GBP 125 billion using central bank reserves.
The minutes revealed that it is too early to assess the impact of the asset purchase scheme on nominal demand. The central bank had acquired just less than GBP 80 billion of assets financed by the issuance of central bank reserves. It will take another two months to meet the GBP 125 billion target for purchases. The MPC would continue to monitor carefully the evidence about the effect of its asset purchases on the economy.
Members cited the tentative evidence that the corporate asset purchase schemes is helping to improve market functioning. The Governor Mervyn King informed committee members about plans on consulting the market regarding the introduction of a Secured Commercial Paper Facility and a Supply Chain Finance Facility with a view to support provisions of working capital to companies.
The minutes said, The risk of a continued sharp contraction in output in the near term had receded somewhat. However, there was no reason to conclude that the medium-term outlook for the economy, and thus inflation, had changed materially.
Members assessed that the appreciation of sterling would tend to reduce inflationary pressures in the short term, while the rise in oil prices would have the opposite effects. The MPC continued to expect annual inflation to fall back over the remainder of 2009, moving below the 2% target.
Medium term inflation expectations based on survey and markets data were broadly unchanged and did not suggest that expectations had become de-anchored from the 2% inflation target. Members said they would also continue to communicate how and why the asset purchase scheme would work and the that it could and would tighten policy once the current exceptional degree of monetary stimulus was no longer warranted.
Last week, MPC member Paul Fisher said that there are signs of slowing in the rate of contraction in the economy, but the U.K. should not be complacent. Another member Andrew Sentance noted that recession in the U.K. might be bottoming out and we should be able to look forward to a recovery beginning either later this year or early in 2010.
For comments and feedback: contact firstname.lastname@example.org