QE decision likely to split Bank’s MPC
QUANTITATIVE EASING should be extended this month despite the more upbeat outlook for the UK economy, according to City PM’s shadow Monetary Policy Committee (MPC), which narrowly voted in favour of further asset purchases this month.
Ahead of the Bank of England’s decision on interest rates and its QE policy, which is due at midday today, five members of the shadow MPC voted for more asset purchases while four thought that the policy should be paused, reflecting the extent to which the City is currently split on the issue.
And of the five in favour of QE, there are divisions on the amount of extra QE and the pace at which the additional assets should be bought. Four think that with Britain struggling to exit recession and poor credit availability, the MPC should ask the chancellor for as much as another £50bn.
And in terms of the pace, Lloyds TSB’s Trevor Williams suggests that £50bn should be injected over the next six months rather than the usual three.
But while weaker money supply data and poor growth prospects have tipped the balance for the Shadow MPC towards more QE, advocates of a suspension cited this week’s upbeat purchasing managers surveys.
Activity in the UK services sector at its strongest since the start of the credit crunch and the hard-hit manufacturing sector grew in October at its fastest rate in almost two years.
Equally worrying for the MPC is the stubbornly high inflation rate and the rising inflation expectations over the next two years. Divisions within the committee are widely expected, especially since governor Mervyn King and David Miles both voted for further QE back in September. Members’ recent comments have fallen both sides of the fence and today’s decision will certainly be a finely balanced one.