MPC minutes show Bank leaning towards extra money printing

Click to follow
The Independent Online

The Bank of England's Governor Sir Mervyn King dramatically pressed for an extra £50bn to be pumped into the economy this month as the eurozone crisis intensified.

In a knife-edge vote, the nine-strong Monetary Policy Committee split 5-4 against an extension of its money-printing programme in June, with Sir Mervyn's change of stance putting him in the minority for the first time since November 2009.

But more quantitative easing to prop up growth now looks virtually inevitable after minutes of the meeting said: "On balance, most members judged that some further economic stimulus was either warranted immediately or would probably become warranted in order to meet the inflation target."

Uncertainty over the outcome of the Greek election stayed the MPC's hand this month, although the narrow margin of the vote underlines the growing fears of a eurozone implosion among rate setters. The MPC has not seen a 5-4 split since June 2007 in the pre-credit crunch era when the Bank was divided over whether to hike interest rates.

News of the cliffhanger emerged as banks queued up to borrow £5bn in cheap six-month loans under the first of the Bank's auctions to ease funding pressures in the financial system. The special auctions, where banks can borrow cheaply against a huge range of collateral, were announced in the Governor's Mansion House speech last week.

The minutes showed rate-setters Adam Posen and David Miles also voted for an extra £50bn in QE although David Miles favoured a smaller £25bn stimulus as concerns over the impact of a euro meltdown on bank lending came to the fore.

The MPC now has more leeway to act on more QE after a bigger-than-expected fall in its consumer prices index inflation benchmark to 2.8 per cent in May.