Shake-up for MPC as Bank moves to buy bonds

A former government adviser on the mortgage market is to replace the so-called "arch dove" David Blanchflower on the Bank of England's Monetary Policy Committee. David Miles, chief UK economist at Morgan Stanley, will join the MPC in June, the Bank said yesterday.

The Bank added that it will now seek to recruit another new committee member after Tim Besley, another external member of the MPC who often took a "hawkish" line on interest rate moves, announced his retirement from the committee in August.

The moves came as the Bank of England announced details of the next phase of its programme of "quantitative easing", overseen by the MPC. The Bank said that it will purchase "small amounts" of corporate bonds, starting on 25 March. Some analysts believe that the purchases will be "miniscule" rather than small, as the Bank says that it will buy "up to £2m" from issues with £250m outstanding, and up to £5m from issues with over £250m outstanding – or 2 per cent.

It added that it is also ready to make small purchases of bonds issued by banks under the Credit Guarantee Scheme (CGS) "if there is deterioration in market conditions".

The MPC will continue to co-ordinate the quantitative easing process.

Although often finding himself in a minority of one through much of 2008 in urging radical reductions in interest rates, Mr Blanchflower correctly forecast the surge in unemployment and onset of recession.

Colin Ellis, economist at Daiwa Securities commented: "Unfortunately, in following Blanchflower, Miles has to take the place of the one policymaker who went out on a limb and had the independence of thought and mind to stick to his guns while others were calling him 'mad'."

Mr Miles has a more mixed record. His 2004 government report on mortgages praised the UK's mortgage finance market, which at the time was offering home loans with increasingly risky profiles.