Bank of England votes unanimously against further QE

IN: Business news

The minutes from September’s meeting of the Bank of England’s Monetary Policy Committee (MPC) show that no members of the MPC voted for further quantitative easing (QE) despite a rise in market interest rates.

undefinedThe improvements in the UK economy so far this year seem to show that unless there is a marked deterioration in the economy, the central bank is unlikely to add to the £375 billion QE programme.

Unlike the last two minutes, the notes did not say that any members of the MPC saw a compelling argument for more QE.

Specifically, the minutes noted that “Over the month the evidence was consistent with a recovery at least as strong as that expected at the time of the August Inflation Report” and that “no member judged that further stimulus was appropriate at present “.

Earlier this year, two members of the nine-man committee, David Miles and Paul Fisher, voted for more QE. along with former Governor, Sir Mervyn King. However since King left to be replaced as governor by Mark Carney, these two members have not voted for more QE.

Once again, the MPC voted 9-0 to keep base rate at its record low of 0.50 per cent, where it has been since March 2009.

It seems likely that the MPC want to assess the market reaction to the new policy adopted on forward guidance on interest rates. This policy was introduced in August and is linked to the unemployment rate and means the bank will not reduce base rate until the unemployment rate has fallen from 7.7 per cent to 7.0 per cent, something it anticipates will happen in 2016.

When the rate does drop to this level, it will not trigger an automatic rise in interest rates, but will lead to a review of rates by the Bank of England.

Dr Howard Archer, Chief UK Economist at IHS Global Insight said: “Regarding the future path of interest rates, much will obviously depend on whether the recent sharp pick-up in economic activity is sustained for an extended period.

“We expect the Bank of England to keep interest rates at 0.50% through 2014 and much of 2015, but we believe that interest rates could start rising gradually in the fourth quarter of  2015. This reflects our belief that the unemployment rate will dip below 7.0% in the third quarter.”

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