Bank split over stimulus package

20th November 2009

Bank of England rate-setters were split three ways about the decision taken earlier this month to pump £25bn more into the economy, meeting notes show. Seven of the nine members of the Monetary Policy Committee (MPC) voted for the £25bn extension, one voted for a higher amount and one for no change.

The members were, however, unanimous in the decision to keep interest rates at a record low of 0. 5%.

The Bank has pumped billions into the economy to try to stimulate demand.

Under the programme - known as quantitative easing (QE) - the Bank has pursued a policy of injecting money into the economy through buying bonds from banks and other companies.

The decision to pump an extra £25bn into the economy brings the total planned spending under the policy to £200bn.

Minutes of the meeting showed that MPC member David Miles called for the stimulus programme to be extended by £40bn.

This would "provide greater insurance against the downside risks to growth and inflation arising from constrained credit supply," the notes said.

However, Spencer Dale, the Bank's chief economist, argued that any extension might push inflation higher, and beyond the 2% target. He voted for the programme not to be expanded.

On Tuesday, official figures showed that CPI inflation had risen to 1. 5% in October, up from 1. 1% in September.

Last week, Bank governor Mervyn King said it was "open minded" about extending QE further.

Analysts said the minutes showed that further extensions could be unlikely.

"I wouldn't rule out any further purchases, particularly if things turn out weaker and third-quarter GDP isn't revised up," said Collin Ellis at Daiwa Securities.

"But I think the chance has somewhat diminished after these minutes. I think it's pretty clear the committee overall would like to stop at £200bn. "

Provisional estimates show that the UK economy shrank by 0. 4% between July and September.

Source: BBC News - Business