David Prosser: The MPC prepares to do battle once more

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The Independent Online

Outlook Here we go again: the monthly soap opera of the Bank of England's Monetary Policy Committee (MPC) meeting begins today, with an announcement due on interest rates and quantitative easing (QE) tomorrow. Don't expect any resolution in the plot that has City economists gripped: no doubt Adam Posen will again vote for a fresh round of QE while Andrew Sentance plumps for an interest-rate rise, but neither will be able to attract sufficient support for their positions from the other seven members. Another month of stalemate looks certain.

The finely nuanced debate about the direction of monetary policy in the UK is in stark contrast to the polarised positions of much of the rest of the world. In the US, it will be a shock this evening if the Federal Reserve says it has decided not to return to QE. Elsewhere, the focus is now determinedly on tightening policy: both India and Australia announced further interest-rate rises yesterday.

The divide underlines again the two-speed nature of the globaleconomic recovery. Much of Asia is bouncing back so quickly from the downturn – not that most of these countries were pitched into outright recession – that governments are worried about the potential for what the Reserve Bank of Australia describes as a "large expansionary shock". In the West, meanwhile, most of the major economies remain nervous about the possibility of a double dip.

The global divide makes the task of the MPC all the more difficult. Those tending towards the Posen position – that not to act now is to risk permanent damage to the UK's growth prospects – will note the restraints being placed on better-performing economies will undermine their performance and their ability to help weaker countries out of the mire. Those who favour the Sentance solution will say the chief worry unnerving countries such as Australia – commodity boom-fuelled inflation – is a major concern here too. Over to you chaps.

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