The Bank of England's Monetary Policy Committee voted unanimously to increase its quantitative easing programme earlier this month, according to the minutes of the latest meeting.
The scale of the vote in favour of more monetary easing indicates how alarmed MPC members had become by the deterioration of the economy over the summer. In the MPC's September meeting, just one member of the nine person committee, Adam Posen, voted in favour of more QE.
The minutes, released yesterday, also strengthen the impression that the MPC will be prepared to engage in further asset purchases next year in order to support the economy. It noted that the size of the scheme would "be kept under review in the light of subsequent analysis and events". MPC members also voted unanimously to keep interest rates at their record low of 0.5 per cent.
On 6 October, the MPC took financial markets by surprise by voting to increase its £200bn asset purchase scheme by £75bn over the next four months. Analysts had been expecting an increase in QE, but not before November. The scale of the easing also outstripped consensus expectations that the MPC would increase its asset purchase scheme by £50bn.
On the issue of timing, the minutes said: "There were clear arguments for acting quickly and decisively now that the need for further monetary stimulus had become clear." The minutes also showed that the MPC discussed increasing asset purchases by up to £100bn.
Research by the Bank of England released last month estimated that the first round of QE, undertaken between March 2009 and January 2010, successfully raised GDP by between 1.5 and 2 per cent. But not all analysts are convinced that more QE will be effective. Nida Ali, an economic adviser to the Ernst & Young Item Club, said: "Additional doses of QE are unlikely to get the same bang for their buck that they got back in 2009. Gilt yields are already depressed at all-time lows so buying more gilts is not likely to push yields down much further, while the scale of uncertainty makes it unlikely that asset prices will go up."
And the British Chamber of Commerce (BCC) urged the Bank of England to do more to channel credit directly to small businesses. David Kern, the BCC's chief economist, said: "While we support the decision to increase the QE programme, we are disappointed that the MPC is still reluctant to purchase private sector assets which could help improve the availability of credit to businesses. Unless the increase in QE is supplemented with credit easing measures, its effectiveness is likely to be diminished."
The Bank of England's research on QE also estimated that the asset purchases raised the inflation rate between 0.75 and 1.5 percentage points. Office for National Statistics figures this week showed that CPI inflation in September hit 5.2 per cent, its highest level since September 2008.