-BOE MPC Voted 5-4 at Jun meeting for unchanged QE
-BOE MPC King, Miles, Posen voted for stg50bn extra QE in Jun
-BOE MPC Fisher voted for stg25bn extra QE in Jun
-BOE MPC Voted 9-0 to keep Bank Rate at 0.5%
-BOE MPC Judged Bank Rate cut had no advantages over more QE

LONDON (MNI) – The Bank of England Monetary Policy Committee came
very close to relaunching quantitative easing in June, with the minutes
showing a five-to-four split in favour of unchanged policy with Governor
Mervyn King in the minority voting for fresh QE.

The minutes of the June meeting revealed King, David Miles and Adam
Posen all voted for an extra Stg50 billion in QE, with Executive
Director Markets Paul Fisher voting for a further Stg25 billion. There
was discussion over cutting Bank Rate from 0.5%, but the MPC voted nine
to zero against it, arguing that at present it had no advantages over
more QE.

Money markets have been pricing in a Bank Rate cut, but the MPC
remains skeptical over the merits of lowering the rate from 0.5%.

“A reduction of Bank Rate below 0.5% might squeeze some lenders’
interest margins to such an extent that they became even less able to
extend new credit,” the minutes said.

The MPC will keep the question of cutting Bank Rate under review
but the minutes said “Overall, the Committee judged that, at the present
time, a further reduction in Bank Rate would have not have any
advantages over an expansion of the asset purchase programme.”

The majority on the MPC took the view that it was better to wait
and see how euro area events unfolded before backing more stimulus,
although extra stimulus was likely to become necessary further down the
line.

“While acknowledging that further stimulus was likely to become
warranted at some point, most members noted that there were several key
events occurring over the coming weeks that could have a material
bearing on the situation in the euro area and that there was merit in
waiting to see how matters evolved before the MPC reached a conclusion
on whether to add any further monetary stimulus,” the minutes said.

The MPC noted that the euro area crisis was feeding through to
higher bank funding costs in the UK. This was creating a “significant
current impediment” to the country’s economic recovery.

Mortgage and other interest rate spreads had risen because of this
but King told the MPC at the June 6 and 7 meeting that the BOE was
already working on new bank funding plans with the Treasury, and these
were unveiled in last week’s Mansion House speech.

On the economic outlook, the MPC agreed “that the upside risks to
inflation had lessened.”

They cited the fall in commodity prices, but said there was a risk
that inflation expectations might not fall as quickly as expected.

Downside risks had increased, with the near term outlook for the UK
economy softening and that “the risks to UK and global activity from
financial distress and political tension within the euro area had
intensified again.”

Even if a disorderly outcome in the euro area could be avoided “the
ongoing threat of such an event would continue to weigh on economic
activity in the UK.”

It was against this background that King and three of his
colleagues voted for more QE, while the majority took a wait-and-see
approach.

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

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