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Bank of England governor Mervyn King was under mounting pressure today after it emerged he was defeated in a rare revolt on Threadneedle Street over how to deal with the recession.
Minutes of the Bank's early August meeting showed King and two other members of the monetary policy committee voted to pump an extra £75 billion into the economy.
It would have extended the Bank's quantitative easing programme to £200 billion from the £125 billion already agreed.
But King, Tim Besley and David Miles were outvoted by the other six members, who instead opted to ramp up the programme by a more modest £50 billion to £175 billion.
It was only the third time King has been outvoted since he took charge at the Bank in July 2003. It was also the first split decision for nearly a year.
The revolt included deputy governors Charlie Bean and Paul Tucker, although the MPC was unanimous in opting to keep interest rates at 0.5%.
The defeat came as sceptics openly questioned whether quantitative easing is working. The City, increasingly at odds with the Bank, had expected an increase of just £25 billion or no change at all this month.
Ross Walker of Royal Bank of Scotland said: “The current policy framework has a somewhat arbitrary feel about it and I remain agnostic about whether £175 billion of quantitative easing is necessary.”
The surprise news that the Bank, and the governor in particular, considered pumping so much extra cash into the economy sent the pound sharply lower today. It suggested that the next move by the Bank could be to plough even more cash into the economy to prevent über-low inflation or even deflation.
Official figures yesterday showed inflation held firm at 1.8% in July, confounding expectations of a fall to 1.5%. That led many to believe that quantitative easing was overdone and could be reversed. It also raised the prospect of interest rate hikes early next year, which could stifle any economic recovery.
But David Buik of BGC Partners said: “Those commentators who think rates could go up in the next six months should think again, inflation or no inflation.”
Vicky Redwood of Capital Economics said: ““Since the meeting we've had some unexpectedly strong inflation figures but…there is a good chance that the MPC will extend the [quantitative easing] programme again in November.”
The minutes from the Bank said the “potential adverse consequences” of printing too much money were “less severe than the possible costs of acting too cautiously”.
http://www.bankofengland.co.uk/publications/minutes/mpc/pdf/2009/mpc0908.pdf
Reader views (2)
The fact we have a Governor of the Bank of England, who thinks for himself is a sign of strength and shows a true debate is undertaken. I favour Mr. King's view over Mr. Brown's or Mr. Darling.
- Andrew, London
Looks like the vegetables on the Committee are fighting back.
- Dhan Raj, Basildon
