Bank of England policymakers voted unanimously this month to seek government consent for quantitative easing through buying gilts and other securities, minutes to their February 4th and 5th meeting showed today.
Sterling fell and gilts rose after the release of the minutes, which analysts said suggested the central bank could start buying assets to boost money supply and support the economy much sooner than expected.
The Monetary Policy Committee also voted 8-1 to cut interest rates by 50 basis points to a record low of 1 per cent, with arch dove David Blanchflower saying there was no time for delay and calling for an immediate 100 basis point reduction.
As rates near zero around the industrialised world, central banks have to consider unconventional ways of boosting their recession-hit economies, such as so-called quantitative easing.
Analysts polled by Reuters last week ascribed an 80 per cent probability that the Bank of England would resort to such measures in March or April, after the MPC's next meeting.
"The principal news is that it looks as if quantitative easing is going to start earlier than expected," said Philip Shaw, chief economist at Investec.
The BoE said creating money to buy gilts should raise private sector spending while buying commercial paper and corporate bonds should help boost the economy by improving liquidity in markets, allowing banks to offer more credit.
"To the extent that further cuts in Bank Rate could not inject sufficient stimulus, the Committee would need to use alternative policy instruments," the minutes said.
Some members argued that there may be a point at which further rate cuts could start hurting the economy since financial institutions have a spread between their deposit and lending rates which affects their profitability.
"There was a great deal of uncertainty about what would happen to banks' and building societies' ability and willingness to lend at low levels of interest rates," the minutes said.
Reuters