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Bank of England votes narrowly against more QE stimulus
LONDON: Bank of England policymakers voted 5-4 against pumping Britain’s recession-hit economy with more new cash under its Quantitative Easing (QE) programme, minutes of a meeting showed on Wednesday.
BoE Governor Mervyn King and three other central bank members voted earlier in June for more stimulus — up to a total of £50 billion (62 billion euros, $79 billion) — but they were out-numbered by those wishing to sit tight.
All nine members of the Monetary Policy Committee (MPC) meanwhile voted to leave the BoE’s main interest rate at record-low 0.50 percent, where it has stood for more than three years.
“Regarding Bank Rate, the Committee voted unanimously in favour of the proposition” to keep the level at 0.50 percent after ruling out a cut, the minutes said.
“Regarding the stock of asset purchases (QE), five members of the Committee... voted in favour” of the status quo.
“While acknowledging that further stimulus was likely to become warranted at some point, most members noted that there were several key events occurring over the coming weeks that could have a material bearing on the situation in the euro area and that there was merit in waiting to see how matters evolved there,” the minutes added.
The news comes amid hopes of fresh stimulus measures from the US Federal Reserve. Many on Wall Street were betting that the Fed would on Wednesday unveil plans to pump more cash into the market to boost the world’s biggest economy.
Britain’s central bank has injected £325 billion of new money into the economy since early 2009 — but analysts argue that more is needed because the country is back in recession.
“June’s MPC minutes left an extension of quantitative easing within the next month or two looking even more likely,” said Vicky Redwood, chief UK economist at the Capital Economics research group.
Under QE, the bank creates new cash to purchase assets such as government and corporate bonds with the aim of boosting lending and economic output.
The BoE said that King, along with two other MPC members voted to pump out an additional £50 billion of stimulus, while one member — Paul Fisher — suggested an increase of £25 billion.
Despite QE, Britain’s main banks have been reluctant to lend to businesses and individuals as they seek to repair their balance sheets, triggering the BoE to last week announce separate stimulus measures.
The Bank of England on Wednesday said it had lent banks £5.0 billion in the first use of a facility to shield Britain’s financial system from the eurozone debt crisis.
The BoE said it allotted the full amount on offer for six-month loans with an interest rate of 0.75 percent. Wednesday’s auction was the first for the BoE’s Extended Collateral Term Repo Facility (ECTR) which King activated last week.
The BoE, along with the British government, also intends to shortly launch a “funding for lending” scheme — lasting several years — that would would offer cheap loans to banks in exchange for a wide range of collateral and on the condition that they increased lending to small businesses.
Reports said that about £80 billion would be made available under the scheme, which was also announced last week.
Britain escaped a deep downturn in late 2009 but fell back into recession in the final quarter of 2011 on the back of state austerity measures and the eurozone debt crisis.
Britain’s Conservative-Liberal Democrat coalition administration has slashed public spending and hiked taxes since it won power in 2010, after inheriting a record deficit from the previous Labour government.
Official data published on Wednesday showed the number of Britons claiming jobless benefits rose in May, ending two months of declines. But it also showed that the total of people in employment has hit a three-year high.
The BoE’s main task is meanwhile to use monetary policy as a tool to keep annual inflation close to a government-set target of 2.0 percent.
Official data published on Tuesday showed British 12-month inflation fell to a rate of 2.8 percent in May — the lowest level for more than two years. -- AFP