Bank of England Closer to Agreeing on Stimulus
LONDON (AP) - The Bank of England’s Monetary Policy Committee came within one vote of backing more monetary stimulus for the economy at its meeting earlier this month, reinforcing expectations that a fresh injection could come in July.
The split vote reflected increasing worries about Britain’s sluggish economy and the impact of financial trouble in the eurozone, the biggest U.K. export market. The recent drop in inflation, meanwhile, has eased the central bank’s concerns about the inflationary risks of more stimulus.
Governor Mervyn King joined with two other members in favor of an injection of 50 billion pounds ($78.6 billion), with a fourth member voting for a smaller shot of 25 billion pounds, according to minutes of the MPC’s June meeting released Wednesday. Five members opposed additional stimulus.
The minutes noted that a majority of the committee believed "further stimulus was likely to become warranted at some point."
"It is now odds-on that the Bank of England will announce more quantitative easing in July," said Howard Archer, chief European economist at HIS Global Insight.
The Bank of England has pumped 325 billion pounds ($509 billion) into the economy since March 2009 through quantitative easing, the purchases of high-quality assets including government securities from banks.
The MPC also discussed, but rejected, the possibility of lowering its key rate from 0.5 percent, an all-time low it was cut down to in March 2009. It was the first time since September that the panel had considered a lower interest rate.
The committee met before it could consider data released Tuesday which showed consumer price inflation unexpectedly falling to 2.8 percent in May, down from 3.0 percent in April and the peak of 5.2 percent in December.
The minutes noted that "the risks to U.K. and global activity from financial distress and political tension within the euro area had intensified again."
"The likelihood of a disorderly outcome looked to have increased, and that could, if it crystallized, have a significant effect on global demand and the stability of the banking system, including in the United Kingdom," the minutes said.
Meanwhile, new data showed that Britain’s unemployment rate in the February-April period was 8.2 percent, a drop from 8.4 percent in the previous three months.
The Office for National Statistics said Wednesday that an increase of 205,000 jobs in the private sector - the second-strongest three-month figure in 13 years- contributed to the improved rate. The number of public sector jobs fell by 39,000 to 5.9 million, the lowest total since March 2003.
The 8.2 percent jobless rate was unchanged from the January-March period which was reported a month ago.
"The latest labor market data point to near-record hiring in the first quarter, but also suggest that the health of the job market has since deteriorated slightly, adding to hopes that the Bank of England will inject further stimulus to help boost growth," said Chris Williamson, chief economist at financial data company Markit.