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Bank of England Split on Stimulus

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The Monetary Policy Committee (MPC) of the Bank of England (BoE) was split again over the issue of stimulus, according to the minutes of its last meeting on March 7 and 8. Adam Posen and David Miles came down in favor of boosting stimulus, while the other seven members opted for a wait-and-see stance.

Bloomberg reported that in the minutes of the meeting, published Wednesday, Posen and Miles wanted to increase the target for bond purchases by 25 billion pounds ($40 billion) to 350 billion pounds. But they were outvoted, and the total was kept at 325 billion pounds.

Disagreement among MPC members has centered on the issues of consumer prices and the need for additional stimulus. While Martin Weale has said there is “risk that there may be more persistence to inflation,” Spencer Dale, the chief economist, said Tuesday that inflation could take longer to slow than the MPC originally believed because of increases in energy prices.

Upside risks to inflation occupied a prominent spot in the minutes, through crude oil prices that could also endanger consumer spending. The MPC said a “clear risk surrounded the outlook for crude oil prices.” It added, “If oil prices were to rise to a level significantly higher than the committee currently assumed, then that would tend to slow the global and domestic recovery, reduce supply growth and put upward pressure on domestic costs and prices.”

It added that “there had been some signs of an upward drift in pay settlements which, alongside continued uncertainty about the outlook for productivity, could indicate some upward pressure on unit labor costs.”

The minutes also cited “significant risks to economic activity that might result in inflation falling materially below the target in the medium term.” In particular it included threats from the euro area, “elevated” bank funding costs and the potential for higher borrowing costs and energy prices to undermine consumer confidence and spending.


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