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Bank of England governor outvoted in bid to launch fresh QE boost Bank of England governor outvoted in bid to launch fresh QE boost
(about 1 hour later)
Sterling fell sharply on the foreign exchanges after news that the governor of the Bank of England, Sir Mervyn King, voted for fresh stimulus to boost the UK economy.Sterling fell sharply on the foreign exchanges after news that the governor of the Bank of England, Sir Mervyn King, voted for fresh stimulus to boost the UK economy.
Minutes of the February meeting of Threadneedle Street's monetary policy committee showed the governor joined two other policymakers – David Miles and Paul Fisher – in voting for an additional £25bn in electronic money creation.Minutes of the February meeting of Threadneedle Street's monetary policy committee showed the governor joined two other policymakers – David Miles and Paul Fisher – in voting for an additional £25bn in electronic money creation.
The other six members of the committee voted against an increase in the £375bn quantitative easing programme but the deep split on the committee added to already strong downward pressure on the pound. The other six members of the committee voted against an increase in the £375bn quantitative easing programme, but the deep split on the committee added to already strong downward pressure on the pound.
In recent months, only Miles has been backing further action to boost growth, but news that King is now also in favour of more QE saw sterling drop to an eight-month low against the dollar within seconds of the publication of the minutes.In recent months, only Miles has been backing further action to boost growth, but news that King is now also in favour of more QE saw sterling drop to an eight-month low against the dollar within seconds of the publication of the minutes.
The pound fell from $1.544 to $1.536 amid speculation the MPC will sanction further purchases of government gilts over the coming months.The pound fell from $1.544 to $1.536 amid speculation the MPC will sanction further purchases of government gilts over the coming months.
The minutes show that King, Miles and Fisher argued further action to stimulate activity was needed to prevent "potentially lasting destruction of productive capacity and increases in unemployment".The minutes show that King, Miles and Fisher argued further action to stimulate activity was needed to prevent "potentially lasting destruction of productive capacity and increases in unemployment".
Although inflation is expected to be above the government's 2% target for the next two years, the three dissenting voices on the committee said they did not think additional QE would lead to further upward pressure on the cost of living.Although inflation is expected to be above the government's 2% target for the next two years, the three dissenting voices on the committee said they did not think additional QE would lead to further upward pressure on the cost of living.
Those opposing further QE said the Bank had already given a "substantial" stimulus to the economy. With inflation already above target there was a risk further asset purchases would send the wrong signal to the public.Those opposing further QE said the Bank had already given a "substantial" stimulus to the economy. With inflation already above target there was a risk further asset purchases would send the wrong signal to the public.
Samuel Tombs, UK economist at Capital Economics, said the minutes provided "another clear demonstration of the committee's increasingly flexible approach to inflation targeting".Samuel Tombs, UK economist at Capital Economics, said the minutes provided "another clear demonstration of the committee's increasingly flexible approach to inflation targeting".
He added that in addition to the three votes for further QE, the MPC meeting also discussed other options for generating growth, including cutting bank rate from its record low of 0.5% and reducing the already small rate of remuneration commercial banks get for their reserves at the Bank. He added that in addition to the three votes for further QE, the MPC meeting also discussed other options for generating growth, including cutting the bank rate from its record low of 0.5% and reducing the already small rate of remuneration commercial banks get for their reserves at the Bank.