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Sir Mervyn King Is Outvoted On Call To Increase Quantitative Easing, Interest Rate Remains 0.5%

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MERVYN KING QE
Vote for further QE is rejected, but the Bank of England's policy members witnessed a strong split for the first time since June 2012 | PA

Sir Mervyn King surprised the markets on Wednesday after it was revealed he, along with committee members David Miles and Paul Fisher, voted for the money printing presses to be ratcheted up a notch.

The Bank of England Monetary Policy Committee meeting minutes, published on Wednesday, were expected to show all but Miles in favour of maintaining quantitative easing (QE) levels at £375 billion, but in a surprise move two more members voted to increase QE By a further £25bn.

The call for increasing the level was voted down by another six members of the committee, but the fact the governor was in favour is telling - many on twitter spoke of increased "dovish" leanings by the Bank of England.

The last time there was a split vote on what to do with QE was in June 2012, and the following month a majority of the MPC backed a £50bn pound increase in asset purchases.

There was also growing concern about what the Bank's minutes would do to the value of sterling - immediately after the minutes were published the pound hit a new low of US $1.535 to every £1.


Joshua Raymond
so BoE's MPC voted 6-3 against more QE but its the 3 votes for it now that is telling. Sterling weakened further. QE prospects higher

Allister Heath
King, Fisher, Miles back extra QE, outvoted 6-3 by MPC. Fascinating rift at Bank

Shaun Richards
the fact that 3 members of the MPC voted for more has seen the pound hit hard to US .535 now

The minutes showed the committee was becoming increasingly concerned at the lack of growth in the UK, but were unsure whether further fiscal stimulus through more QE would have much of an impact.

"A case could be made that, if further stimulus was required, policy interventions more targeted at particular frictions or market failures in the economy were likely to be more effective in current conditions than further asset purchases," the minutes read.

"In this context, for example, the Committee continued to monitor the effects of the Funding for Lending Scheme, which was so far operating broadly as it had anticipated, although it was too early to judge the full effects of the Scheme’s impact on bank lending volumes."

The committee was also concerned that inflation was likely to remain high for the first half of 2013, and talked of the risk that the prospect of continued above-target inflation could result in a rise in inflation expectations, which could affect wage and price-setting behaviour.

Arguing for further QE, the notes said the committee discussed whether an increase in asset purchases would reduce longer-term interest rates and underpin the value of a broad range of assets, helping to rebalance the economy and avoid increases in unemployment.

It's not yet clear what incoming governor Mark Carney will do with QE and interest rates, although history would suggest he will aggressively pursue a policy of keeping interest rate low while the economy recovers.

In Canada, at the onset of the financial crisis, Carney made an early, bold public commitment to keep rates at rock bottom for a year - come what may - to restore market confidence, and hinted at Davos last month that he will carry his radical approach into his next job.

Canada never had to confront money-printing though, so QE is not something of which Carney has personal experience, though given his preference for ultra-low interest rates, it seems likely he will embrace the practice.

The Bank of England's Monetary Policy Committee minutes also showed the members voted unanimously to keep interest rate at 0.5%.

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