The prospect of further monetary stimulus from the Bank of England appeared more likely yesterday as the minutes of the latest meeting of the rate-setting Monetary Policy Committee revealed that two members voted in favour of buying more assets last month.
Adam Posen and David Miles argued that the level of asset purchases should be increased by £75bn. The pair pointed to the amount of slack in the British economy and the levels of debt repayment by households and firms as a justification for more stimulus to support economic demand.
Mr Posen has been a long-term advocate of asset purchases from the central bank, but the support of Mr Miles for more extensive easing was a genuine surprise to financial markets.
The rest of the Monetary Policy Committee voted for an extra £50bn in purchases, creating a seven-two split on the nine-person rate-setting panel.
Financial markets had interpreted last week's quarterly Inflation Report from the Bank, which showed inflation returning close to the 2 per cent target over the two-year forecast period, as a signal that this latest round of quantitative easing – which will take the full programme of asset purchases up to £325bn – will be the last. But yesterday's minutes prompted some analysts to predict more rounds of asset purchases in the coming months as the two doves on the MPC gain ground.
"A further extension of QE is likely later in the year," said Simon Wells of HSBC. And some economists said that a weakening of the UK economy would be the trigger for more monetary stimulus from the Bank. "The committee's forecasts are still based on optimistic expectations for GDP growth. We doubt that these will be met, meaning that more QE will still be necessary to stop inflation undershooting its target," said Vicky Redwood of Capital Economics.
However, the minutes also revealed "some members" of the MPC – thought to be Spencer Dale and Martin Weale – saw a case for keeping the asset purchasing facility on hold this month, suggesting a growing divergence of views over monetary stimulus.