BOE: More stimulus likely

19th September 2012

Yet some of the members "felt that additional stimulus was more likely than not to be needed in due course," because of the "subdued and uncertain" outlook for medium term economic growth. While others saw the risks to inflation in the medium term as being more balanced around the target.

For one member, however, "the decision this month was more finely balanced, since it was not clear that the uncertainties about the medium-term outlook would be resolved to any great extent in the coming months and, given the weakness in demand, a good case could be made at this meeting for announcing more asset purchases."

In reaction to the minutes, Martin Beck from Capital Economics research consultancy says September's MPC minutes do little to diminish the prospects of further policy stimulus over the coming months.  "As a result, we still expect another £50bn of asset purchases to be announced at November's meeting and for QE to ultimately reach £500bn. We also think there continues to be a decent chance of an interest rate cut in November."

Melanie Bowler of Moody's, however, does not foresee the introduction of any new unconventional monetary policy tools in the near term unless the economy fails to recover as expected. "Moody's Analytics forecasts that the economy has started growing again in the third quarter and will continue to expand, albeit modestly, in the final three months of the year. However, the risks remain firmly weighted to the downside, not least due to the U.K.'s strong trade and financial linkages with the struggling euro zone."

And Howard Archer of IHS Global Insight remains "skeptical" that the Bank of England will take interest rates down to 0.25% "given ongoing serious doubts within the MPC that such a move would have a net overall beneficial impact."

Brian Hilliard of Societe Generale, meanwhile, thinks the interesting thing about the minutes was the Bank of England's "slightly less" confident tone about inflation. "That's a little niggle – I think the overall view is still that inflation is coming down and is not a constraint."

Separately, Rachel Lomax, the former deputy governor of the Bank of England says she will not be applying to be the bank's next governor when Sir Mervyn King steps down next year. Ms Lomax, who was deputy governor from 2003 to 2008 and the leading female candidate to take over, said Sir Mervyn's successor would have a "huge job".

"It's going to be a very different organisation – much bigger and more complex organisation than the one that Mervyn King's presided over. So you need someone who can get their mind round that and at least sort of lead the change and put together the team that can implement it."


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