–BOE MPC Most Members – Policy Decision Relatively Straightforward
–Of Those Some Saw Additional Stimulus Likely Needed In Due Course
–Others Saw Inflation Risks More Balanced Around Target In Medium Term
–But One Member Saw Decision ‘More Finely Balanced’
–Worries EZ Uncertainty, Risk Aversion Could Limit FLS Impact
–Substantial Risks In EZ Which Could Impact Global Bank Stability

LONDON (MNI) – The Bank of England Monetary Policy Committee voted
unanimously for both unchanged asset purchases and Bank Rate at its
September meeting, with only one member seeing the decision on asset
purchases as ‘more finely balanced’.

The minutes show most members of the MPC viewing the decision as
“relatively straightforward” but some of these saw the need for fresh
stimukus at some stage as more likely than not.

“For most members this decision was relatively straightforward,
although some of these members felt that additional stimulus was more
likely than not to be needed in due course, while others saw the risks
to inflation in the medium term as being more balanced around the
target”.

The majority opted to wait for “the next few months” in order to
gain “further insight into the underlying paths of supply and demand”.

Markets are still largely expecting that the MPC could take a
decision to extend further its asset purchases when it meets in November
to discuss its next set of quarterly inflation and growth forecasts.

The minutes of the meeting strike a more wary note on the likely
impact of the Funding for Lending on lending and borrowing – noting that
the plan is in its “early stages”.

“It had the potential to reduce funding costs and to encourage the
supply of credit. Set against that, heightened uncertainty, stemming
especially from the euro area, risk aversion on the part of households
and businesses might limit the demand for credit, making the impact of
the FLS difficult to predict”.

That said, the committee said it had been “encouraging that there
had been further cuts announced by some banks on some of their lending
products”. Monitoring the progress of the FLS in the short term would
best be done by looking at lending rates rather than credit volumes.

The committee also took a guarded view of the recent buoyant
seeming industrial production data for July, saying that this required
“further study” but along with other indicators suggested “some modest
underlying expansion”.

But more forward-looking surveys had been weaker and the rise in
energy prices would mean that there the squeeze on household incomes
would not ease further in the short term.

The MPC also reiterated its usual concerns on the risks emanating
from the euro zone even if the worst might be avoided.

“Very substantial risks were likely to remain for some time to
come, which if they crystallised, could have a considerable impact on
the stability of the global banking system”.

The minutes continued:

“Even if a disorderly outcome were avoided, it was probable that
the threat of such an event would continue to weigh on domestic activity
for some time.”

Overall, a snap assessment of these minutes suggest an MPC which is
very much reserving its judgement despite recent signs of a Q3 bounce.
The underlying picture is one of only modest expansion at best while the
euro zone’s travails could still stymie all committee’s best efforts to
boost activity.

-London newsroom: Tel: +44 207 862 7492; email:dthomas@marketnews.com

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