Bank of England's Sir Mervyn King outvoted on QE move
- 20 February 2013
- From the section Business
Bank of England governor Sir Mervyn King backed more action to boost the economy earlier this month, but was outvoted by his colleagues on the Monetary Policy Committee (MPC).
Minutes of the MPC's meeting show it voted 6-3 against expanding the quantitative easing (QE) programme from its current level of £375bn.
However, markets saw the vote as increasing the chance of more QE later.
The pound fell sharply after the release of the minutes.
Against the dollar, the pound was down 0.9% at $1.5284, while sterling dropped 0.6% against the euro to 1.1450 euros.
The minutes were released as new figures from the Office for National Statistics showed the UK unemployment total fell by 14,000 between October and December to 2.5 million.
The last set of GDP figures showed the economy contracted by 0.3% in the final quarter of 2012, raising the prospect of the UK falling back into recession if the economy shrinks in first three months of 2013.
Under QE, the Bank of England buys government bonds, hoping to create beneficial knock-on effects for the economy.
The minutes from the latest MPC meeting show that three members of the committee, Sir Mervyn King, Paul Fisher and David Miles, voted to increase the size of the QE programme to £400bn.
Mr Miles has voted for an increase in QE for several months, but the addition of Sir Mervyn and Mr Fisher came as a surprise.
It is only the fourth time that Sir Mervyn - who is due to be replaced by Bank of Canada governor Mark Carney in July - has been outvoted since he became governor in 2003.
The last time the MPC was split in a similar way was in June last year, and the programme of QE was expanded by £50bn the following month.
All nine members of the MPC voted to keep interest rates at the record low of 0.5%, where they have been since March 2009.
The MPC minutes show that committee members felt that more QE by itself would be "insufficient to transform the outlook for growth".
Other policy measures discussed included buying assets other than government bonds, cutting interest rates, and reducing the marginal rate of interest on bank reserves held at the Bank of England to encourage them to lend more.
However, the MPC said it had noted "drawbacks" with all of these in the past, and these drawbacks remained.
Recently the Bank has indicated that it is prepared to tolerate a period of inflation above its target of 2%, as measures to bring inflation lower may hurt economic growth.
Presenting the Bank's latest inflation report last week, Sir Mervyn said inflation, currently 2.7%, was expected to rise to at least 3% by the summer and to remain above the 2% target for two years.
Samuel Tombs of Capital Economics said: "February's UK MPC minutes provide another clear demonstration of the committee's increasingly flexible approach to inflation targeting.
"Today's minutes have therefore made us more comfortable with our view that more QE is likely this year, particularly if GDP growth continues to fall short of the committee's expectations."