LONDON (MNI) – Bank of England Monetary Policy Committee members
voted unanimously at their January meeting to keep policy unchanged, but
the minutes highlighted divisions over the inflation outlook and the
likelihood of more quantitative easing.

The nine to zero vote at the January meeting in favour of unchanged
policy had been widely expected, but the minutes dispelled the myth the
MPC is engaging in “group think”. There were clear divisions over the
inflation outlook.

One group of MPC members highlighted downside inflation risks and
said further QE was likely. Others said the inflation outlook was more
finely balanced and that it was less clear inflation would fall below
target in the medium term.

“For some members, the risks of undershooting the target meant that
a further expansion of asset purchases was likely to be required,” the
minutes said.

Some of this group saw downside inflation risks from a greater than
expected margin of spare capacity.

These members “noted a downside risk to inflation arising from the
possibility that the reduction in the economy’s supply potential
following the recession had been less, and hence spare capacity greater,
than assumed in the (November) Inflation Report.”

This group did not vote in favour of more QE in January, however,
with the minutes stating “there was no compelling need to increase the
scale of asset purchases before completing those already announced.”

The current round of Stg75 billion of QE is set to end ahead of
the February MPC meeting.

Another MPC group, however, was less sanguine over inflation
prospects and appeared less inclined to believe more QE was likely.

“For other members, the risks to inflation were more finely
balanced and it was less clear that inflation would fall below target in
the medium term,” the minute said.

They noted inflation rates were still running above target and
cited upside risks from firms increasing margins and from wages adding
to inflationary pressures if productivity growth stayed weak.

On the international front, the MPC noted the downside risks from
the global economy but the European Central Bank, through its actions,
had reduced the risks from the euro area banking sector.

–London newsroom: Tel+44 207 862 7491; e-mail: drobinson@marketnews.com

[TOPICS: M$$BE$,MT$$$$]