The Bank of England is close to launching a new round of monetary stimulus because of the worsening euro zone crisis, according minutes of its last policy meeting, which showed officials split 5-4 on the move, with governor Mervyn King in favour.
The minutes show far stronger explicit support for more asset-buying quantitative easing than many economists had expected, and is the first 5-4 split on the MPC since June 2007.
Mr King was last in a minority in August 2009, when he also supported more QE than the majority.
Last month BoE policymaker David Miles was the only official to call for an expansion of quantitative easing - which is designed to help the economy by making borrowing cheaper – but economists had generally expected him to be joined by only one or two further members of the MPC this month.
Mr King and external members Adam Posen and Mr Miles both voted to increase quantitative easing by £50 billion to £325 billion. Paul Fisher, the BoE's executive director for markets, supported a £25 billion increase.
Moreover, it looks likely that there could be a majority for more QE as soon as next
month.
"Most members judged that some further economic stimulus was either warranted immediately or would probably become warranted in order to meet the inflation target," the minutes said.
All members of the MPC believed that inflation was likely to be lower than the central bank forecast in May, when it predicted it would take until the second half of next yea r before inflation fell below its 2 per cent target.
Data published yesterday showed that inflation fell unexpectedly to a 2.5-year low of 2.8 per cent, further easing the way for the BoE to expand QE - possibly as soon as next month.
The BoE decided in May not to extend QE purchases largely because inflation was
proving slower to fall than expected.
Separately, official data today showed the number of Britons claiming unemployment benefit rose unexpectedly in May, the latest sign of the economy's ill health.
The Office for National Statistics said the number of people claiming jobless benefit rose by 8,100 last month. Analysts had forecast a fall of 3,000 on the month.
In the BoE minutes, MPC members cited a fall in commodity prices and signs of less generous wage settlements as evidence of weaker inflation in the short term, and warned that risks to Britain from the euro zone debt crisis had intensified.
"The likelihood of a disorderly outcome looked to have increased, and that could, if it crystallised, have a significant effect on global demand and the stability of the banking system," the minutes said.
Reuters
