Policymakers at the Bank of England are also growing increasingly likely to sanction another round of quantitative easing as they eye the darkening economic picture.
Although only one member – Adam Posen – voted for the move at the last gathering of the Bank's Monetary Policy Committee, most are edging closer to backing another injection of money into the economy, according to the minutes of the September meeting.
The boost could come as early as next month, with the record showing that some members thought that "a continuation of the conditions seen over the past month would probably be sufficient to justify an expansion of the asset purchase program at a subsequent meeting". All nine members – the Governor, Sir Mervyn King, Charles Bean, Paul Tucker, Ben Broadbent, Spencer Dale, Paul Fisher, David Miles and Mr Posen – voted to keep interest rates on hold at the record low of 0.5 per cent.
The policymakers were alive to the risks to the recovery, with the minutes noting that, "on the basis of the recent surveys, it seemed likely that global growth would be weaker than the Committee had assumed" in the Bank's Inflation Report in August.
The concerns were echoed in a speech by the David Miles, the Bank's chief economist, who spoke to the South Tyneside Manufacturing Forum yesterday. "The outlook for demand over the past few months has weakened quite materially," he said, adding that the deteriorating picture "largely reflects developments outside of our shores". "Concerns about the fiscal positions of some countries, particularly within the euro, have intensified," he said.
These and other factors – including diminishing confidence in the ability of the authorities to respond to these challenges – has led to "a pronounced downward spiral" that has hit the UK, with the growth exports faltering, and confidence in companies and households taking "another downward step," Mr Miles said. "If the economic situation continues to deteriorate, some additional loosening in monetary policy might be needed," he explained.
But any decision to revive the Bank's quantitative easing programme had to be weighed against "continuing high inflation," he said, which, on the consumer prices measure, is expected to rise to more than 5 per cent in coming months, although it is expected to fall back towards the Bank's 2 per cent target next year.Reuse content