Bloomberg News

BOE Voted 9-0 as Some Officials Say More QE May Be Needed

November 23, 2011

(Updates with forecasts in fifth paragraph, comment from economist in sixth.)

Nov. 23 (Bloomberg) -- Bank of England policy makers were unanimous in their decision to maintain the target for asset purchases this month, as some officials said an increase in stimulus may be needed in future.

The Monetary Policy Committee voted 9-0 to keep the target at 275 billion pounds ($428 billion) after increasing it by 75 billion pounds in October, according to the minutes of their Nov. 9-10 meeting, published today in London. While risks from the euro-area debt crisis “had increased,” it said there was “little merit in fine tuning” the program while the current four-month round of purchases were continuing.

“Market capacity made it difficult to increase the monthly rate of purchases substantially above what was already under way,” the minutes said. “Some members noted that the balance of risks to inflation” in the bank’s new forecasts “meant that a further expansion of the asset-purchase program might well become warranted in due course.”

The Bank of England said today that failure by Europe’s leaders to tackle the debt turmoil “could result in a much weaker external environment.” While its forecasts show inflation falling below its 2 percent target in a year, it noted that price growth remains well above its target and that the projected undershoot is “not very large.”

Inflation Outlook

Based on the current bond-program target remaining unchanged, officials have forecast that inflation will slow to 1.27 percent at the end of their two-year horizon, according to detailed forecasts published today. Still, the central bank said “it remained a possibility” that inflation would ease at a weaker pace than the MPC projects. Consumer-price growth was 5 percent in October.

“On balance, the committee is in a much less dovish position than we thought,” said Richard Barwell, an economist at Royal Bank of Scotland Group Plc. The minutes “reveal that they want to take the next three months to gather evidence on the effectiveness of the latest round of purchase program, rather than rushing to a snap judgment.”

The MPC also voted unanimously to keep its benchmark interest rate at a record-low 0.5 percent this month, the minutes showed.

The pound remained lower against the dollar after the report, falling for a third day. It traded at $1.5566 as of 10:54 a.m. in London, down 0.4 percent on the day.

Euro Crisis

The Bank of England said that concerns about the fiscal position of some euro nations had pushed up sovereign-bond yields and led to “widespread falls in confidence.”

“While the worst risks had not so far crystallized, the threat of their doing so had increased, exacerbating the already severe strains in bank funding markets and financial markets,” it said.

Official data tomorrow will likely show that Britain’s economic growth was 0.5 percent in the third quarter, the same as previously estimated, according to the median forecast of 32 economists surveyed by Bloomberg News.

The central bank said underlying growth was probably weaker than 0.5 percent, saying that “heightened uncertainty associated with international developments and the stresses in financial markets had probably weighed on U.K. spending.”

Data this week showed U.S. gross domestic product climbed at a 2 percent annual rate in the third quarter, lower than a previous estimate. Minutes of the Federal Reserve’s Nov. 1-2 meeting published yesterday showed some of its officials “indicated that they believed the economic outlook might warrant additional policy accommodation.”

Economic Outlook

In a separate report, the Bank of England said employment intentions had “softened recently,” citing a summary of reports compiled by its agents. It noted “rising concerns about future failures” in the retail industry if household spending for Christmas falls short of expectations, and said intentions for business investment had “softened.”

It said in the minutes that recent output indicators pointed to “broadly unchanged activity in the fourth quarter rather than a material contraction.”

While some officials said more so-called quantitative easing may be required in the future, others “judged that the risks to inflation around the target were more balanced,” according to the minutes.

“Given the imprecision with which the appropriate stance of policy could be calibrated at this juncture, there was little merit in fine tuning,” the central bank said.

--With assistance from Mark Evans and Jennifer Ryan in London. Editors: Fergal O’Brien, Simone Meier

To contact the reporter on this story: Svenja O’Donnell in London at

To contact the editor responsible for this story: Craig Stirling at

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