QE2 could set sail as early as next MPC meeting

Minutes from the Monetary Policy Committee’s September meeting show a further bout of quantitative easing is on its way.

The Bank of England put a halt to its quantitative easing programme in February 2010 after buying £200bn of assets.

But the MPC says most members believed slowing economic growth had strengthened the case for an immediate resumption of asset purchases and that an injection would be likely at a subsequent meeting.

Members also reconsidered the idea of lowering interest rates below 0.5%. Adam Posen was the only member to call for a further £50bn of quantitative easing and all nine members voted to keep interest rates on hold at 0.5%.

But the minutes also show members were concerned about pumping more money into the economy during a period of sustained above-target inflation and concerns about how quickly inflation would fall back to target.

Samuel Tombs, UK economist at Capital Economics, says: “The minutes strongly suggest that QE2 is set to be launched in the near future. Admittedly, no other members joined Posen in voting for an instant resumption of the asset purchases.

“However, most accept that the case for immediate policy stimulus has significantly strengthened over the last month the debate is now how to provide that extra stimulus.”

He says Capital Economics expects a further £50bn of gilt purchases to be announced in November.