The Bank of England yesterday dropped its biggest hint yet that it is preparing to pump billions more into the UK's struggling economic recovery.
Minutes of the Monetary Policy Committee's latest meeting showed a unanimous vote to hold fire on further money printing after expanding its quantitative easing programme by £50bn in July.
But the dovish tone of the MPC's deliberations caught some analysts off guard as the minutes revealed "some members", Bank code for a minority on the nine-strong committee, saying there was a "good case" for further action this month.
Despite yesterday's shock rise in inflation to 2.6 per cent, the Bank's latest forecasts show the cost of living dipping under its 2 per cent target in two years' time, potentially paving the way for more QE in the autumn. Experts said November was the most likely date, when the programme of asset purchases, running at £375bn, is completed.
Although the Bank estimates that the Diamond Jubilee bank holiday knocked around 0.5 per cent off the economy, rate-setters are still concerned about the general lacklustre recovery, with growth at a standstill for the past two years.
The economy shrank by 0.7 per cent between April and June, although this should be revised up when the Office for National Statistics revisits its initial forecasts.
Deutsche Bank's chief economist George Buckley said: "The fact the vote was more 'finely balanced' for some members suggests the chance of a QE expansion in the event of weaker growth remains high."
KPMG's chief economist Andrew Smith added: "As long as the economy remains moribund and the output gap remains large, further stimulus is on the cards. So expect another tranche of QE when the current one is completed in November – and more extreme policy measures cannot be ruled out."
Some analysts still believe there is an outside chance of borrowing costs falling below the current 0.5 per cent record low in November.Reuse content