United MPC keeps 'door open' on Bank pumping further cash into economy

Published on Wednesday 23 December 2009 20:00

CITY opinion is divided on whether the Bank of England will pump up to £25 billion more into Britain's stagnant economy in the new year after members of the monetary policy committee were in broad agreement to take no further action at their last meeting.

The minutes of the December get-together showed that all nine members voted to maintain the 200 billion asset-buying programme – known as quantitative easing – and keep record low interest rates on hold.

They indicated that policymakers at the meeting on 9-10 December felt little had changed since November when the MPC expanded quantitative easing by another 25bn.

Some City economists said yesterday the tone "leaves the door open" for a further extension of the creation of new money, largely by buying up gilt-edged stocks.

Tom Vosa, economist with NabCapital, said: "An MPC consensus has broken through. The minutes leave open (the possibility of] an extension of quantitative easing when the committee meets in February, for another three months to May."

Jonathan Loynes, of Capital Economics, said the report suggests the Bank was in "wait-and-see" mode until February.

Loynes said: "While it seems likely that the MPC is nearing the end of its measures to support the economy, further action is certainly possible if the recovery disappoints. Either way, any tightening of policy (raising interest rates] remains a long way off."

However, some remain sceptical and believe the asset-buying programme is likely to close early in the new year.

George Buckley, chief UK economist at Deutsche Bank, said: "It's still consistent with our view that they will finish QE at the end of January and won't do any more."

Howard Archer at IHS Global Insight also said the minutes indicated that the Bank of England was "in a wait-and-see mood" until February. "By then, they will have the GDP figures for the fourth quarter of 2009 and also more news on inflation," he said.

December's unanimity on the amount to be pumped into the economy followed a split MPC decision the previous month.

The December minutes said those who had sought a different outcome in November still thought a slightly different scale of asset purchases could be justified.

"But the lack of significant news on the month meant that the case for deviating from the programme of asset purchases was outweighed by the benefits of completing it as planned," the minutes added.

The Bank added, however, that it remained difficult to decide whether the economy has turned amid both positive and negative factors.