Minutes from the last monetary policy committee meeting released today show Bank of England governor Mervyn King was in favour of increasing the central bank’s quantitative easing programme by a further £75bn, instead of the £50bn that was approved.
King was joined in his push by two other MPC members. However, the three were out-voted by the rest of the committee.
It is a disclosure which Brian Hilliard of Société Générale says “underlines that a significant faction of the MPC is still very concerned about the weak growth prospects.”
The quantitative easing programme – which technically constitutes the creation of new money to try and kick start the economy – now stands at £175bn. The initial £75bn announced in March this year plus subsequent top ups, culminating with the latest £50bn on August 5, has been deemed necessary as bank’s continue to restrict credit in a bid to balance their books. Consumer and commercial business spending is thus negatively affected and the economy suffers as a result. Manufacturers have been particularly affected by a lack of access to credit since the downturn began.
The created money from a QE programme is used to buy up government and corporate debt from financial institutions, providing the latter the cash flow to start lending again. Cutting interest rates, which since the QE was started have remained at a historically low level of 0.5 per cent, is another device used to the same end.
The downside to creating new money is that taxpayers money is being put at risk through the purchase of debt that could potentially be defaulted on, as well as the negative effect it has on the value of sterling.
Of the revelations in the minutes, Ross Walker, UK economist at the Royal Bank of Scotland said: “The expectation was a very unanimous vote and if there was dissent it might be more towards doing less rather than more. That is clearly not the case. There is still a very asymmetrical feel to these headlines. The bias is very much towards what if we don’t do enough rather than what would be the possible consequences of having done too much.”
The minutes also reveal that the MPC expects the latest cash injection to be spent by November. Opinions among analysts are divided about whether there will be, and indeed should be, any more funds put into the programme at that stage.