As widely expected, the Bank of England decided to pump an extra £50bn into the economy, taking QE to a total of £325bn.
However, MPC minutes show that, while the nine members were unanimous in holding base rate at 0.5%, both David Miles and Adam Posen voted to increase the asset purchase programme by £75bn to a total of £350bn.
Further monetary stimulus was deemed necessary by the MPC, because without it weak growth and downward pressure from slack in the economy would result in inflation undershooting its 2% target in the medium term.
While the MPC said that an increase of either £50bn or £75bn would be “sufficient to put inflation broadly on track”, the majority of members decided there was not enough evidence that the larger stimulus was required at this time.
This was owed to stronger than expected growth in the near term and remaining short-term inflation pressures. It added that “given market expectations, a larger increase risked sending a signal that the Committee thought the economic situation was weaker than it was.”
The Committee noted that CPI inflation had fallen in line with its expectations since it peaked in September and expects further drops over the next few months, as rises in petrol and utility prices and the remaining effect of the increase in VAT drop out of the 12-month calculation.
While it added that the extent and pace of further falls in inflation was uncertain, the MPC maintains inflation will drop below 2% by the beginning of 2013.
Its forecast for GDP growth is equally uncertain. Over the course of 2012, the MPC judges quarterly growth will be “volatile” owing to one-off factors such as the Queen’s Diamond Jubilee bank holiday, while the effect of the troubled eurozone continues to be felt.
