Bank of England stands firm on monetary policy ahead of Osborne's Budget

Bank of England stands firm on monetary policy ahead of Osborne's Budget

The minutes of the Monetary Policy Committee (MPC) meeting that took place earlier this month reveal that some members think a bit more stimulus is warranted. But those members remain in the minority.

Economic Analysis

20 March 2013

In fact, the vote breakdown was unchanged from last month with three members out of nine, including Governor King, voting to boost the asset purchase programme by £25bn to £400bn.

One reason for no change in the voting pattern might be that some members appear to be getting a little concerned over rising inflation expectations. Small rises in expected future inflation amongst households and in financial markets were noted by members.

In other words, the Bank of England is happy to look through what it sees as temporary rises in inflation. But overall it wants to keep inflation expectations anchored.

On the other hand, the decision not to adjust monetary policy is difficult to square with some of the other comments in the minutes. The members see a roughly 50:50 chance of a further contraction in headline GDP in Q1.

Further ahead, members view a modest recovery as "likely". But the main reason for this is "the drag on growth from the construction sector seen during 2012 was unlikely to persist". Hardly a strong foundation for a recovery.

Some members pointed out that "there were limits to what further asset purchases could be expected to achieve to support output". This view is likely justifiable and it's one that many economists share.

But what's worrying is the lack of alternatives being proposed on the part of members.

There's only three MPC meetings to go with a Governor King led MPC before Mark Carney takes over. So meetings from the summer may see an injection of new ideas to tackle the persistent disappointing performance of the UK economy.

Fingers crossed.

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