The Bank of England’s Monetary Policy Committee were in all in agreement to hold the base rate at 0.5% and not to extend its £200bn quantitative easing programme.
The MPC’s minutes from its meeting held earlier this month reveal that there was an argument to increase the degree of monetary stimulus.
Over the next three years the MPC forecast that the Consumer Prices Index measure of inflation is likely to be below its 2% target if the size of the quantitative easing programme remained at £200bn.
But the committee also argued that as CPI inflation was currently above target and was likely to keep rising there was a risk that expanding the size of the asset purchase programme might add to inflation expectations.
The minutes say: “Given the exceptional degree of uncertainty over how the economy would evolve, there was little merit in attempting to fine-tune monetary policy in the hope of achieving comparatively small changes to the future path of inflation.”
Inflation data published by the Office for National Statistics yesterday revealed that CPI inflation had jumped to 3.5%, from 2.9% in December.
The MPC says that pausing the quantitative easing programme at this stage allows them to adopt a wait-and-see approach, to judge how effective it has been and assess the strength of the emerging economic recovery.
It says that extending the asset purchase programme was still on the table should the outlook for inflation warrant it in the medium-term.
The minutes go on to say: “Taken together, all members felt that the arguments in favour of leaving the size of the asset purchase programme unchanged at this meeting were more persuasive.
“But for some members, the arguments were very finely balanced.”