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MPC still unanimous on bank rate but predicts more QE

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  • 25/01/2012
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MPC still unanimous on bank rate but predicts more QE
The Bank of England’s Monetary Policy Committee (MPC) once again voted unanimously to maintain interest rates at 0.5% and keep the quantitative easing (QE) programme at £275bn in January, despite fears inflation may fall below target levels.

Minutes of the MPC’s most recent meeting showed no-obne voted against the motion top hold rates at 0.5% and hold QE, although, like last month, there were strong suggestions of another round of QE.

“For some members, the risks of undershooting the [inflation] target meant a further expansion of asset purchases was likely to be required,” the minutes said.

“Some of those members also noted a downside risk to inflation arising from the possibility that the reduction in the economy’s supply potential following the recession had been less, and hence spare capacity greater, than assumed in the Inflation Report.”

A number of members felt these medium-term risks were balanced by upside pressures, including increases in prices as firms seeking to increase margins, the expectation of subdued wage growth and weak productivity growth.

However, in the short term, they expected inflation to “fall sharply in the coming months” as the impact of last year’s increase in the VAT rate, higher energy and import prices wears off.

One factor singled out as a threat to the Bank’s strategy on inflation was commodity prices, as “heightened tensions in the Middle East raised the risk of a sharp rise in oil prices”.

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