Bank of England governor backed more stimulus for UK economy

Wednesday 20 February 2013 18.53
Bank of England boss Mervyn King came close to backing more stimulus for UK economy
Bank of England boss Mervyn King came close to backing more stimulus for UK economy

Top officials in the Bank of England expressed growing concern over Britain's economy, minutes of the last policy meeting of the Bank of England show today.

The officials came closer to backing another monetary stimulus in a move that piled further pressure on the pound.

The minutes showed outgoing Governor Mervyn King and two other members of the Monetary Policy Committee supported another cash infusion to revive Britain's ailing economy.

However, King, Paul Fisher and David Miles, were outvoted by the six others, who preferred to keep policy unchanged.

Since 2009, the Bank of England has pumped £375 billion into the British economy. Under the programme - commonly called quantitative easing or QE - the bank buys government bonds from financial institutions in the hopes they will use the proceeds to support the economy.

King and the two others wanted to inject another £25 billion pounds, arguing that the pressure on inflation was limited. Inflation stood at an above-target 2.7% in the year to January.

"Although inflation seemed likely to remain above the 2% target over the next two years, the degree of slack in the economy, and the likely positive response of supply capacity to increased demand, meant that higher output growth would not necessarily lead to any material additional inflationary pressure," those backing another stimulus argued, according to the minutes.

The Bank of England is tasked with setting monetary policy to achieve a 2% inflation target two years down the line.

King's apparent willingness to allow inflation to remain above target has raised speculation in the markets that he and others on the committee are more flexible in their approach to achieving that target.

King is due to be replaced by Bank of Canada Governor Mark Carney this summer. Carney has indicated he backs a more flexible inflation target. The vote proved somewhat of a surprise in the markets - most economists were expecting only Miles to vote for further asset purchases.

There was unanimity, though, in the decision to keep the bank's main interest rate unchanged at the record low of 0.5%.

Britain's economy has flatlined over the past year and there are fears it may enter its third recession in four years. In the final quarter of 2012, the British economy shrank 0.3% from the previous three-month period.