–BOE MPC: Considered Asset Purchases Between stg50bn to stg100bn
–BOE Posen: Things Moving Down Fast; MPC Must Be One Step Ahead

LONDON (MNI) – The Bank of England Monetary Policy Committee closed
ranks at its October meeting, with all members backing the decision to
sanction a further stg75 billion in quantitative easing, despite deep
uncertainty over the exact amount required.

The minutes sent a clear message that the MPC was ready to do more
if required. Some members made the case for a bigger dose of QE and all
agreed the amount could be altered depending on how events unfold in the
euro zone and financial markets.

With MPC members out and about on a regional tour of the North West
of England, a raft of comments are likely to emerge in coming hours and
days. Their comments are likely to be variants on the same theme – that
inflation has probably peaked, it will come down fast next year and that
the MPC is ready to provide whatever stimulus the battered economy
needs.

There was some speculation prior to the minutes that there could
have been a dissenter in the MPC ranks with Chief Economist Spencer
Dale, who has repeatedly warned of the risk of high inflation becoming
embedded in the system, the prime suspect.

In the event, the minutes revealed the MPC look at a range of QE
options, from stg50 billion to stg100 billion and everyone voted for the
mid-range figure of stg75 billion.

The minutes make clear the final sum chosen was not a result of
precise calibration. The need to act quickly, in unison, faced with the
intensifying euro zone crisis and economic downturn were key.

“There was considerable uncertainty over the scale of asset
purchases necessary to keep inflation at target in the medium term,” the
minutes said.

“For some members, the substantial downside risks pointed to
injecting a larger monetary stimulus than otherwise in order to place
the UK economy in a stronger position were those risks to materialise,”
the minutes added.

Arch dove Adam Posen is one of those MPC members who almost
certainly believed there was a case for more QE.

Posen was the first of the MPC members on the regional tour to have
remarks published.

“Things are moving that fast in a downward direction that we have
to be one step ahead in terms of policy,” Posen told the Lancashire
Evening Post.

Another likely sympathiser to the cause of still more QE would be
the BOE’s Executive Director, Markets Paul Fisher, who has highlighted
the pressure the UK consumer is under and the attendant weakness of
domestic demand.

At the October meeting, the MPC looked at the case for delaying
providing further stimulus until November, when the quarterly Inflation
Report is published, but they opted to get more QE underway as soon as
possible.

“There were clear arguments for acting quickly and decisively now
that the need for further monetary stimulus had become clear,” the
minutes said.

There was no debate recorded in the minutes over alternatives to
what analysts have termed “plain vanilla” QE – concentrating on bulk
purchases of gilts.

The debate over policy alternatives appears to have been settled,
at least for the time being, at the MPC’s September meeting.

At that meeting the committee looked a range of options, including
changing the maturity of assets in its Asset Purchase Facility or making
a US Federal Reserve style announcement that rates would stay “low for
long”.

It concluded “none of these options appeared to be preferable to a
policy of further asset purchases should further policy loosening be
required.”

With the Treasury set to spearhead credit easing, and BOE Governor
Mervyn King opposed to the central bank taking on credit risk, the MPC
policy looks crystal clear – large scale purchases of gilts now and more
to follow if required.

The current stg75 billion round of asset purchases is set to take
the MPC through to February, when it undertakes its next Inflation
Report, allowing it to reassess the economic outlook and the scope for
more QE at the same time.

The MPC could, however, still find itself overtaken by events in
the euro zone.

In reference to the euro area sovereign debt strains, the minutes
said, “While the worst risks had not crystallised, the threat of them
doing so had resulted in severe strains in bank funding markets and
financial markets more generally.”

“These tensions … could result in a further tightening of credit
conditions, posing a threat to the recovery in the United Kingdom,” the
minutes added.

There is clearly a possibility of the MPC sanctioning more QE even
before February if the euro area sovereign debt debacle becomes a
full-blown crisis.

–London newsroom: tel+44 207 862 7491; email: drobinson@marketnews.com

[TOPICS: M$$BE$]