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Bank split over money injection | Bank split over money injection |
(about 10 hours later) | |
The Governor of the Bank of England, Mervyn King, wanted to pump more money into the UK economy this month but was outvoted by fellow policymakers. | The Governor of the Bank of England, Mervyn King, wanted to pump more money into the UK economy this month but was outvoted by fellow policymakers. |
Minutes of the bank's Monetary Policy Committee (MPC) meeting on 6 August reveal that Mr King wanted £75bn rather than the £50bn that was injected. | Minutes of the bank's Monetary Policy Committee (MPC) meeting on 6 August reveal that Mr King wanted £75bn rather than the £50bn that was injected. |
Two fellow committee members also voted for a bigger cash injection. | Two fellow committee members also voted for a bigger cash injection. |
The decision to pump £50bn came as a surprise, and was already twice the £25bn that the market expected. | The decision to pump £50bn came as a surprise, and was already twice the £25bn that the market expected. |
The bank originally set aside £150bn for buying assets, but the decision to inject an extra £50bn took the total to £175bn. | |
The governor, backed by Tim Besley and David Miles, voted instead for a £75bn expansion. | The governor, backed by Tim Besley and David Miles, voted instead for a £75bn expansion. |
They argued that too little stimulation would mean inflation remaining below its target of 2% for "a sustained period of time... and might harm public confidence in the recovery, causing it to falter". | They argued that too little stimulation would mean inflation remaining below its target of 2% for "a sustained period of time... and might harm public confidence in the recovery, causing it to falter". |
They added that if £75bn proved to be too much, they could reverse the policy, by selling assets, and increase interest rates. | They added that if £75bn proved to be too much, they could reverse the policy, by selling assets, and increase interest rates. |
Sterling fell sharply as a result of the minutes, as they expressed concern about the strength of any recovery in the UK economy. | |
The pound fell 1% against the dollar, to $1.639, and by 0.8% against the euro, to 1.162 euros. | |
'Additional measures' | 'Additional measures' |
The bank has been pursuing a policy of pumping money into the economy - known as quantitative easing - by buying assets from financial institutions. | The bank has been pursuing a policy of pumping money into the economy - known as quantitative easing - by buying assets from financial institutions. |
The aim was that these institutions would then lend some of the money made from these sales to businesses and individuals. | The aim was that these institutions would then lend some of the money made from these sales to businesses and individuals. |
The central bank hoped that this would, in turn, boost spending and help the economy emerge from recession. | The central bank hoped that this would, in turn, boost spending and help the economy emerge from recession. |
Following the committee's meeting earlier this month, the bank issued a statement saying that the UK recession "appears to have been deeper than previously thought". | Following the committee's meeting earlier this month, the bank issued a statement saying that the UK recession "appears to have been deeper than previously thought". |
But the 6-3 split on the MPC shows that views within the bank differ on just how deep the recession is, and the outlook for inflation. | But the 6-3 split on the MPC shows that views within the bank differ on just how deep the recession is, and the outlook for inflation. |
I think [the minutes] underline the fact that a significant faction of the MPC is still very concerned about the weak growth prospects Brian Hilliard, Societe Generale What is quantitative easing? | I think [the minutes] underline the fact that a significant faction of the MPC is still very concerned about the weak growth prospects Brian Hilliard, Societe Generale What is quantitative easing? |
Analysts said the differing views meant the bank might pump even more money into the economy. | Analysts said the differing views meant the bank might pump even more money into the economy. |
"It was surprising we had three members looking for £75bn," said analyst Peter Dixon at Commerzbank. | "It was surprising we had three members looking for £75bn," said analyst Peter Dixon at Commerzbank. |
"This clearly suggests the bank is leaving the door open for additional measures should they feel need a rise. Quantitative easing is still very much in play." | "This clearly suggests the bank is leaving the door open for additional measures should they feel need a rise. Quantitative easing is still very much in play." |
Vicky Redwood at Capital Economics said the minutes "gave a strong signal that QE might yet be extended even further." | Vicky Redwood at Capital Economics said the minutes "gave a strong signal that QE might yet be extended even further." |
'Promising signs' | 'Promising signs' |
The committee noted that stock markets had "increased considerably", and that Libor, the rate at which banks lend to each other, had fallen. | The committee noted that stock markets had "increased considerably", and that Libor, the rate at which banks lend to each other, had fallen. |
It also noted that there were "promising signs" that quantitative easing was "having a positive impact". | It also noted that there were "promising signs" that quantitative easing was "having a positive impact". |
But against this, the committee said that lending conditions remained tight, economic activity remained weak and the "recovery in global demand remained susceptible to further shocks". | But against this, the committee said that lending conditions remained tight, economic activity remained weak and the "recovery in global demand remained susceptible to further shocks". |
These factors would, it said, "most likely lead to a slow recovery in the level of economic activity", which meant further action needed to be taken. | These factors would, it said, "most likely lead to a slow recovery in the level of economic activity", which meant further action needed to be taken. |
"I think [the minutes] underline the fact that a significant faction of the MPC is still very concerned about the weak growth prospects," said Brian Hilliard at Societe Generale. | "I think [the minutes] underline the fact that a significant faction of the MPC is still very concerned about the weak growth prospects," said Brian Hilliard at Societe Generale. |
All nine members of the committee voted in favour of keeping interest rates at 0.5%. | All nine members of the committee voted in favour of keeping interest rates at 0.5%. |