Divisions hint at further money printing by Bank of England

By Scott Reid
Published on Thursday 23 February 2012 00:00

A FURTHER bout of money printing to prop up Britain’s ailing economy remains on the cards, analysts said yesterday, as signs of division emerged at the Bank of England.

Minutes of the bank’s latest rate-setting meeting showed that two officials voted for a bigger increase this month in quantitative easing (QE) than was eventually agreed.

Many economists had judged that the momentum for additional stimulus was fading after last week’s cautiously upbeat forecast from the central bank.

Governor Sir Mervyn King said that while he expected the UK economy to “zig-zag” in and out of growth in 2012, the recovery was heading in the right direction.

That optimism, coupled with a string of positive business surveys in recent weeks, had prompted many analysts to call time on further QE.

But news that David Miles had joined long-standing dove Adam Posen in voting for a £75 billion boost, rather than the £50bn increase favoured by the rest of the bank’s monetary policy committee (MPC), reopened the debate over whether policymakers will embark on further emergency support.

The split among the nine MPC members appeared to run deep as some considered doing nothing, worried that inflation may turn out higher than the central bank expects.

David Tinsley, chief UK economist at French bank BNP Paribas, said the minutes to the February meeting revealed “a somewhat surprising voting pattern”.

He said: “In terms of the policy outlook, these minutes are more dovish than we were expecting. But we would not overstate that case.

“Posen is something of a perma-dove, having voted to increase QE in every meeting over 2011 until it actually occurred in October. Miles, on the other hand, has tended on average to vote with the pack.”

In their argument for a greater bout of fiscal stimulus, Posen and Miles noted that there was “a risk of a prolonged period of depressed demand”.

Howard Archer, chief UK and European economist at IHS Global Insight, has forecast QE will rise in £25bn increments in May and August to top £375bn.

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