Bank Of England Minutes Show Spilt Over The APF Increase

The Bank of England released the Minutes of the Monetary Policy Committee meeting held on 8&9 February 2012, where the MPC voted unanimously to leave rates steady at 0.5%; however, policy makers split on the asset purchases program.

Adam Posen and David Miles called for an increase in the quantity of the stimulus by 75 billion pound, while the other seven members including the governor Mervyn King voted to increase the program by 50 billion pound to currently run with a capacity of 325 billion pounds, according to the Minutes.

Miles and Posen argued for a bigger increase in asset purchases because of 'the considerable margin of spare capacity remaining in the economy and the extent of deleveraging still likely to be required.' They saw a risk of a 'prolonged period of depressed demand causing inflation to fall materially below' the central bank's 2 percent target.

Nevertheless, the majority of members feared that an increase more than 50 billion pounds could signal that 'the committee thought the economic situation was weaker than it was.'

'Recent data on the domestic and international economies had on balance been more positive than might have been anticipated towards the end of 2011, pointing to the possibility that growth might be stronger than expected in the near term,' according to the Minutes.

The Bank of England tend to increase the quantitative easing by 50 billion pounds after the economy contracted by 0.2% in the fourth quarter of 2011, where the spending cuts program adopted by the Exchequer George Osborne in addition to the debt crisis in the euro-zone forced heavy pressures on growth.

The Bank of England was able to increase the stimulus again after the first round approved in October ended in January as inflation fell sharply from 5.2% in September to 3.6% in January, while the bank projects inflation to ease further, undershooting the target by the end of this year.