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BoE Minutes: MPC voted 6-3 to keep stimulus steady

BoE Minutes from the MPC monetary policy meeting held on 6 and 7 Februay and released today reveal that the Committee voted unanimously in favor of maintaining the interest rate at 0.5%.

As far as the proposition to continue with the program of asset purchases totaling £375 billion is concerned, six MPC members voted in favor while three voted against. The Governor Mervyn King, David Miles and Paul Fisher who voted against preferred to boost the QE program by £25 billion to a total of £400 billion.

According to the minutes, the MPC discussed how to address the issue of t curret weakness of UK economy combined with the perspective of inflation remaining aboove the 2% target in the forseeable future. They decided that withdrawing stimulus earlier than expected by financial markets “would risk derailing the recovery and undershooting the inflation target in the medium term. They also agreed that should the perspective for growth and inflation warrant it, additional QE would be implemented.

The majority of the MPC members did not consider a further increase of the asset purchase program necessary after the February expansion. The Governor Mervyn King, David Miles and Paul Fisher argued however that “although inflation seemed likely to remain above the 2% 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.” That is why they pushed for an expansion of asset purchases as a way to rebalance the economy, prevent a rise in unemployment and a potentially lasting destruction of productive capacity.

“In hindsight, given the unusual release of a statement post a 'no change' decision coupled with the undeniably dovish tone of last week’s press conference there was a risk of more people shifting,” suggested James Knightley, strategist at ING Financial Markets. “It is significant though that it was the Governor and one of his deputies. Clearly, if the data disappoints, more QE will be on its way given the BoE’s statement it will look through a 2 year period of above target inflation.”

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