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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 this policy, but the decision to inject an extra £50bn took the total to £175bn. 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%.