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Minutes reveal MPC voted unanimously to hold base and QE

The Bank of England’s Monetary Policy Committee voted unanimously to keep base rate at a record-low 0.5 per cent and the Bank’s programme of quantitative easing at £375bn.

None of the committee members thought it appropriate to tighten the stance of monetary policy at this time, as none of the knockout conditions that would invalidate its new policy of forward guidance were breached.

Last month, the BoE said it would keep base rate at 0.5 per cent until the UK’s unemployment rate falls below 7 per cent, or unless inflation spikes, which suggest base rate will rise at some point in 2016. The BoE is also prepared to add to QE while the unemployment rate remains above its desired level.

However, BoE governor Mark Carney added that the MPC will have to consider rate changes if inflation is expected to go beyond 0.5 per cent of its target in 18-24 months or if there are any threats to financial stability.

The minutes also say more QE may be warranted if the recent economic recovery to falter. It says: “Were the recovery to falter, the case for further asset purchases would be stronger. But no member judged that further stimulus was appropriate at present.”

Earlier this month, statistics from the Office for National Statistics showed the number of people unemployed in the UK fell below 2.5 million to 7.7 per cent in the three months to July. However, this is still some way above the 7 per cent “knockout” suggested by the BoE.

Inflation eased in August, making a base rate rise even more remote at this time. Inflation fell 0.1 per cent to 2.7 per cent in August.

Recent movements in the markets suggest investors believe a rate rise could come as soon as 2015, but Capital Economics chief UK economist Vicky Redwood feels this is unlikely.

She says: “The minutes stress that, if the recovery falters, the case for more QE will be stronger. But for now, it looks like the committee is not too concerned about the lack of any downward impact on market interest rates from its forward guidance and that its only action will be ‘to emphasise in public communication that the 7 per cent threshold was not a trigger’ for a rate rise.

“Overall, then, more QE before the end of the year now looks less likely, although we still think that markets are wrong to expect interest rates to be rising by the start of 2015.”

Base rate has remained at current levels since March 2009, when the MPC first voted to cut rates to record-lows in a bid to help stimulate the economy. On the same day the MPC launched its programme of quantitative easing. 

The quantitative easing programme was increased by £50bn to £375bn in July 2012, though the committee has voted in factions since then with some members, including former governor Mervyn King, backing a further increase to the programme.



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