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King votes for more QE; MPC considers interest rate cut

by: Anna Fedorova; Julia Rampen
  • 20/02/2013
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King votes for more QE; MPC considers interest rate cut
Sir Mervyn King voted to increase quantitative easing by a further £25bn at February's Monetary Policy Committee meeting, latest minutes reveal.

The meeting, held on 6 and 7 February, saw the Bank of England keep QE on hold at £375bn – but minutes revealed a 6-3 split among committee members.

King and Paul Fisher joined David Miles in voting for an extra £25bn of QE in February. Miles has called for more asset purchases since last November.

The committee also reviewed the range of possible monetary policy instruments that could be deployed, including a reduction in Bank Rate. It reported: “The Committee had noted drawbacks with each of these options in the past; those drawbacks remained.

“The Committee would nevertheless continue to examine all of the policies potentially available to it.”

Funding for Lending was working in line with expectations, the committee said, despite lending remaining weak. “Fixed-rate mortgage interest rates had continued to fall in January, as had retail unsecured loan rates,” the minutes noted.

“There had been some signs of improvement in the housing market: mortgage approvals increased in the fourth quarter of 2012 and the Nationwide and Halifax indices had suggested house prices had risen modestly in the three months to January relative to the three months to October.”

The MPC also discussed measures to increase the credit flow from non-bank lenders, and the impact of more targeted policy measures by other authorities.

However, the minutes struck a downbeat tone on the economy as the committee again considered the benefits of cutting the base rate of interest to below 0.5%.

Last year, King said the MPC would think hard before increasing QE, although he added it was ready to pull the trigger if necessary.

MPC members in favour of QE argued that further asset purchases could help rebalance the economy, in part by acting to reduce longer-term interest rates and underpinning the value of a broad range of assets.

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