More QE better than interest rate cut for inflation, finds Bank

18 July 2012 | By Rob Langston

A cut in the base rate was rejected by the Bank of England’s monetary policy committee in favour of more funds for the asset purchase scheme in order to reach the central bank’s 2 per cent inflation target.

Inflation had fallen quicker than expected thanks to a drop-off in global energy prices, with the rate expected to fall “modestly” during the remainder of the year.

All members thought further stimulus was needed, according to the minutes of the MPC’s July meeting.

“On balance, and in light of the potential stimulus provided by the other recent and prospective policy initiatives, these members judged that an additional £50bn of asset purchases was appropriate at this meeting in order to balance the risks to inflation around the 2 per cent target in the medium term,” the minutes reveal.

Seven members of the nine-man committee, including governor Mervyn King, voted in favour of the increase, with gilt purchases to be made over a period of four months, while Spencer Dale and Ben Broadbent preferred to maintain the quantitative easing programme at £325bn.

The weakening of GDP growth “implying a period of two years where there had been little or no economic growth” had not fit with the near-term view the MPC had expected at the May inflation report as a results of the eurozone crisis.

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