MPC voted unanimously in favour of holding interest rates at record low

 

The pressure on Bank of England policymakers was underlined today as minutes revealed their decision not to inject more cash into the struggling economy earlier this month was "finely balanced".

The Monetary Policy Committee (MPC) was unanimously in favour of holding interest rates at a record low of 0.5% this month while only one member, David Miles, voted in favour of increasing the Bank's quantitative easing programme from its level of £325 billion.

But minutes from the May meeting said the committee could boost support if needed as fears over persistently weak growth remained, while inflation could fall below target.

Furthermore, the MPC did not take into account the potential "extreme possibilities" associated with the eurozone crisis - such as a Greek exit from the single currency.

Samuel Tombs, UK economist at Capital Economics, said: "It still looks like it won't take much to tip the committee into doing more QE."

Pressure for more stimulus measures has intensified amid the recent deepening in the eurozone crisis and after figures showed the UK in a technical recession, with gross domestic product declining 0.2% in the first three months of the year after a 0.3% drop in the final quarter of 2011.

Earlier this week, the International Monetary Fund (IMF) called on the Bank to boost the economy by lifting QE or by cutting the 0.5% base interest rate below its current historic low.

In the May minutes, the Bank said that "aggressive loosening of policy in the near term" could offset the risks of weak growth and stubbornly high unemployment.

The minutes confirmed the Bank's recent £50 billion QE injection in February has now completed.

In its quarterly inflation report, published last week, the Bank warned that the rate of inflation will fall more slowly than previously expected, remaining above the Government's 2% target for the next year or so.

However, the consumer prices index fell further than expected in April, official figures revealed yesterday, to 3% from 3.5% in March, giving the Bank some room for manoeuvre.

David Kern, chief economist at the British Chambers of Commerce (BCC), said: "The worsening eurozone crisis has heightened the risks facing the UK, and if the financial system comes under pressure an increase in QE may still be needed."

PA

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