BoE chief's call fuels recovery worries
Signs that Bank of England Governor Mervyn King is worried about the country's economic recovery rose on Wednesday as minutes of a recent policy meeting showed he wanted to pump out more new money than agreed.
King and two other BoE policymakers wanted the Bank of England to increase its so-called quantitative easing (QE) programme by 75 billion pounds at a meeting earlier this month.
However their plan was thwarted as the Monetary Policy Committee's other six members voted in favour of a proposal to increase QE by 50 billion pounds to a total of 175 billion pounds.
David Page, an economist for Investec banking group, described the 6-3 split and King's wish to increase QE to 200 billion pounds as "surprising" and partly "reflected an argument to err on the side of caution, but it also appeared to reflect some genuine doubts about ongoing growth prospects."
ING Bank economist James Knightley said it was only the third time that King had been outvoted since taking charge of the BoE in 2003.
He added that King's desire to raise the central bank's QE by 75 billion pounds when the market had expected an increase of only 25 billion pounds suggested that traders were "much more upbeat than the BoE is on recovery prospects".
While France, Germany and Japan have all emerged from recession, Britain remains stuck in negative growth as the number of unemployed people in the country rises towards three million.
Also at the BoE's two-day meeting that ended on August 6, policymakers voted 9-0 to keep interest rates in Britain at a record low 0.5 percent.
The BoE has meanwhile ramped up its QE scheme -- whereby it buys bonds from commercial institutions -- to encourage lending by commercial banks.
Banks remain reluctant to lend to businesses and individuals because they want to build up their capital reserves, which have slumped on a surge in bad debts caused by the global financial crisis.
The Bank of England launched QE in March, when it also slashed borrowing costs to their all-time low 0.5 percent.
Its main task is to use monetary policy to try and keep annual inflation close to a government-set target of 2.0 percent, but the BoE has been forced into the exceptional policy of QE because of the downturn.
Inflation stabilised last month, official data showed on Tuesday, but economists warned that prices would fall further in the coming months.
Consumer Prices Index (CPI) annual inflation was unchanged at 1.8 percent in July from June but has fallen sharply since peaking at 5.2 percent last September.
The Bank of England last week forecast that the rate of 12-month inflation was set to fall under 1.0 percent this year as the local economy makes a slow recovery from recession.