MPC unanimous against printing more money

Bank of England policy committee agrees to keep interest rates at record low
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The Independent Online

The prospect of a fresh bout of quantitative easing receded yesterday, after it emerged that the Bank of England's Monetary Policy Committee (MPC) voted unanimously against extending the programme this month.

All nine members of the committee, including the Bank's Governor, Mervyn King, pictured, voted to maintain the £200bn asset-buying scheme announced in November, as well as deciding to keep interest rates at 0.5 per cent.

While the MPC acknowledged that several setbacks had recently threatened global financial stability – above all the crisis in Dubai – the committee did not believe enough had changed in the past month to extend quantitative easing.

The previous month, the MPC was split over how much money to print, with one member, David Miles, calling for an additional £40bn.

The minutes of the December meeting, published yesterday, said: "For those members who had preferred a different policy action at the November meeting, a slightly different scale of asset purchases could still be justified. But the lack of significant news on the month meant that the case for deviating from the programme of asset purchases announced in November was outweighed by the benefits of completing it as planned."

The news emerged on a mixed day for economic data in the UK. Service sector output rose by just 0.1 per cent between Septmebr and October, figures from the Office for National Statistics revealed. While the gains had slowed, it marked the first time since February last year that the sector expanded in consecutive months.

Howard Archer, an economist at IHS Global Insight said: "The service sector therefore seems on track to see expansion in the fourth quarter following five quarters of contraction. Given that the services sector accounts for 76 per cent of UK output, this bolsters belief that the economy has returned to growth in the fourth quarter, even if it is still far from racing ahead."

Meanwhile, the British Bankers' Association (BBA) reported that mortgage approvals rose to 44,713 last month, the highest level for more than two years. Net mortgage lending rose to £3.3bn in November, from £3.2bn in October, the BBA added.

Oliver Gilmartin, a senior economist at the Royal Institution of Chartered Surveyors, said: "[The numbers] add further weight to our view that house prices will continue to move higher during early 2010 ... However, we expect the market to take a reality check in the second half."

But Mr Archer cautioned: "Housing market activity has been lifted gradually through 2009 by the significant fall in house prices from their 2007 peak levels and low mortgage interest rates. The upside continues to be limited by unfavourable economic fundamentals."

He predicted that already high unemployment figures were likely to increase further next year, while earnings growth would remain low.

"We believe house prices will fall by about 5 per cent next year and would not be surprised if the slippage is greater still," Mr Archer said. "Much will clearly depend on whether the economy can build a recovery after a probable return to growth in the fourth quarter."

The TUC said yesterday that the number of people claiming jobseeker's allowance for more than a year had nearly doubled since the end of 2008. The total claiming the benefit hit 201,015 in November, compared with 103,390 the previous December.

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