The latest minutes from the Bank of England’s Monetary Policy Committee show that the number of its members wanting to see an increase in the asset purchase programme has increased from last month’s one out of nine to three out of nine in February.

Last month the MPC voted unanimously to maintain interest rates at 0.5%. On the question of the stock of asset purchases eight of its members voted to maintain it at £375 billion whilst one, David Miles, voted to increase it by £25 billion to £400 billion.

This month saw another unanimous vote to maintain interest rates but now three members – The Governor Mervyn King and Paul Fisher joined David Miles – vote in favour of a £25 billion increase.

The committee also voted unanimously that the Asset Purchase Facility reinvest the £6.6 billion proceeds of Gilts maturing in March as they were due to mature on the MPC’s next decision day and it is normal to make the decision prior to the maturation.

Nida Ali, economic advisor to the Ernst & Young ITEM Club, commented:

The change in the MPC’s voting pattern, in favour of more QE, comes as a bit of a surprise, especially in light of last week’s Inflation Report where the Bank’s inflation forecasts were revised up and the Governor hinted at fears that monetary policy was becoming a blunt instrument in the face of supply side weakness.

Bank of England -

Bank of England –

We are strongly in favour of further monetary easing. But, like the MPC, we are concerned that the benefits of more gilt purchases might be quite limited. The Funding for Lending Scheme looks as if it is starting to have a positive impact and the suggestion that the MPC is thinking about new policy options is encouraging.

There is a clear need to debate the structure and implementation of UK monetary policy and to consider the merits of alternative policies, such as following the US Federal Reserve in adopting numerical thresholds for variables other than inflation or targeting nominal GDP. Indications that the MPC intends to introduce greater flexibility in the time horizon, which dictates when inflation must reach its target, is a step in the right direction.

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