Bank of England Mulls Return to QE

Faltering recovery may need boost

The Bank of England may return to quantitative easing (QE) at some point as a stuttering recovery may need assistance, according to the Monetary Policy Committee (MPC) notes released Wednesday.

Although MPC members took no such action, and indeed the vote was 8-1 against, they acknowledged in the minutes of their Sept. 7-8 meeting that it was becoming increasingly likely that such an action would be necessary in the future. Currently the bond-buying program stands at 200 billion pounds ($313 billion), and Mervyn King led the majority to vote that it remain at that level. But additional bond buying was advocated by Adam Posen, who proposed an increase of 50 billion pounds.

The vote was unanimous to maintain the current benchmark rate at its record low of 0.5%. However, the discussion did visit methods of loosening policy in light of worsening economic conditions around the globe and a “materially weaker” growth prospect in the second half of 2011.

“There had been significant downside news on activity over the month, including in the U.S. and the core euro-area countries, which had pointed to a synchronized slowing in global growth,” the minutes said, and specified the consideration of “changing the maturity of the portfolio of assets held” and even the possibility of further lowering the interest rate or providing “explicit guidance” on the direction that rate might take. In the end, however, the minutes said, “At the current juncture, none of these options appeared to be preferable to a policy of further asset purchases should further policy loosening be required.”

That said, the future looks to hold the probability of further QE, with most MPC members taking the view that it was “increasingly probable that further asset purchases to loosen monetary conditions would become warranted at some point,” adding, “For some members, a continuation of the conditions seen over the past month would probably be sufficient to justify an expansion of the asset purchase program at a subsequent meeting.”

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