LONDON – Top officials in the Bank of England expressed growing concern over Britain’s economy and came closer to backing another monetary stimulus in a move that piled further pressure on the pound.
Minutes of the last policy meeting of the Bank of England released Wednesday showed outgoing Gov. Mervyn King and two other members of the Monetary Policy Committee supported another cash infusion to revive Britain’s ailing economy.
However, King, Paul Fisher and David Miles, were outvoted by the six others, who preferred to keep policy unchanged.
Since 2009, the Bank of England has pumped 375 billion pounds ($579 billion) into the British economy. Under the program — commonly called quantitative easing or QE — the bank buys government bonds from financial institutions in the hopes they will use the proceeds to support the economy.
King and the two others wanted to inject another 25 billion pounds, arguing that the pressure on inflation was limited. Inflation stood at an above-target 2.7 per cent in the year to January.
“Although inflation seemed likely to remain above the 2 per cent target over the next two years, the degree of slack in the economy, and the likely positive response of supply capacity to increased demand, meant that higher output growth would not necessarily lead to any material additional inflationary pressure,” those backing another stimulus argued, according to the minutes.
The Bank is tasked with setting monetary policy to achieve a 2 per cent inflation target two years down the line. King’s apparent willingness to allow inflation to remain above target has raised speculation in the markets that he and others on the committee are more flexible in their approach to achieving that target. King is due to be replaced by Bank of Canada Governor Mark Carney this summer. Carney has indicated he backs a more flexible inflation target.
The vote proved somewhat of a surprise in the markets — most economists were expecting only Miles to vote for further asset purchases. The pound took a pounding on the news, falling over a cent against the dollar to $1.5321.
“Today’s minutes have therefore made us more comfortable with our view that more QE is likely this year, particularly if GDP growth continues to fall short of the committee’s expectations,” said Samuel Tombs, a U.K. economist at Capital Economics.
There was unanimity, though, in the decision to keep the bank’s main interest rate unchanged at the record low of 0.5 per cent.
Britain’s economy has flatlined over the past year and there are fears it may enter its third recession in four years. In the final quarter of 2012, the British economy shrank 0.3 per cent from the previous three-month period.