–BOE MPC Voted 7-2 For Stg50bn QE Increase At Feb Meet
–BOE MPC Miles, Posen Preferred Stg75bn Boost To QE
–BOE MPC Voted 9-0 For Unchanged Banke Rate At Feb Meeting
–Some MPC – ‘Case Could Be Made’ For No Further Policy Stimulus
–BOE MPC: Stg75bn QE Boost Risked Worrying The Markets
–One-Off Factors, Esp. Jubilee, Seen Making Near-Term Growth Volatile

LONDON (MNI) – Bank of England Monetary Policy Committee proved
more divided than expected by the markets at its February meeting, with
two members voting for a bigger than stg50bn boost to asset purchases
and some members recognising that a case could be made for no further
monetary stimulus.

The minutes showed David Miles and Adam Posen both voting for a
stg75bn boost to QE, while the rest of the committee supported the
decision for a stg50bn boost.

Posen and Miles argued that the “considerable margin of spare
capacity remaining in the economy and the extent of deleveraging still
likely to be required” were factors in the case for a larger increase.

Reasons put forward for the smaller stg50bn option included
stronger data on the domestic and international economies as well as the
impact of the European Central Bank’s LTRO which had “reduced some of
the worst immediate downside risks to the outlook stemming from the euro
area”.

On the inflation outlook, the minutes show that “for some members,
the probability of inflation exceeding the target was slightly higher
than shown in the projection to be published in the February Inflation
Report, and a case could be made for maintaining the stance of policy
at this meeting”.

“For others, the case of further easing was more clear cut”.

The minutes show that one key argument for opting for the smaller
increase was that a larger increase could send out a signal to the
financial markets, which were largely expecting stg50bn, that the
committee thought the economic situation was “weaker than it was”.

Other arguments also helped clinch the case for stg50bn –

“Short-term inflation pressures remained. The rate was still well
above the 2% target and there was a risk that inflation might prove more
persistent than in the Committee’s central projection, especially if
downward pressure from labour market slack was less than expected”.

An injection of Stg50bn for the majority represented a “material
monetary stimulus” and “it was not clear” that a larger increase was
warranted at the moment.

For their part, Posen and Miles argued that “should the probability
of inflation being above the target in the medium term increase”, the
MPC could withdraw some of it at future meetings.

The minutes show that the MPC see growth remaining volatile in the
near term, given “the impact of one off factors” – notably, the
additional Bank Holiday associated with the Queen’s Diamond Jubilee in
the Q2.

“But thereafter growth should strengthen gradually, supported by a
recovery in households’ real income growth and the expansionary state of
monetary policy”. But, the weak international situation, tight credit
conditions and fiscal consolidation would remain “headwinds”, the
minutes showed.

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

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