BoE sees worse inflation outlook, one member sees case for more QE

September 19, 2012 10:00 AM GMT

Bank of England policymakers judged Britain's short-run inflation outlook had darkened earlier this month, but some still thought they would probably need to inject more stimulus, minutes of their September meeting showed on Wednesday.

The Bank said higher oil prices and the threat of increased food and utility bills to come meant that inflation was unlikely to slow as rapidly as they had forecast one month earlier, squeezing consumers' disposable income.

In the medium term, a recent rise in employment twinned with weak output growth also posed a risk of labour market price pressures that could push up the cost of goods and services, the Bank added.

But the overall outlook for growth remained subdued - sufficiently so that one of the nine-member committee said there was a "good case" to step up the BoE's programme of asset purchases now.

For the rest of the MPC, it was a "relatively straightforward" decision to stick with the four-month programme of 50 billion pounds of asset purchases agreed in July, which will run through until November.

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"Some of these members felt that additional stimulus was more likely than not to be needed in due course, while others saw the risks to inflation in the medium term as being more balanced around the target."

The BoE's current programme of government bond purchases with newly created money - which is designed to help an economy that has been in recession since late last year - will reach 375 billion pounds by November, and most economists expect the Bank to then raise the target to 425 billion pounds.

But economists have been keen to see if the MPC is now tilting in a more hawkish direction since the Confederation of British Industry's former chief economic advisor Ian McCafferty succeeded arch-dove Adam Posen at the start of September.

Last week two MPC members who opposed restarting asset purchases in July, Ben Broadbent and Spencer Dale, expressed doubts about the ability of more QE to help the economy, while one previous QE advocate, David Miles, said his mind remained open about whether more would be needed in November.

In August the Bank slashed its growth outlook for this year to zero and sharply downgraded its medium-term forecast as euro zone "storm clouds" cast a long shadow and scars from the global financial crisis appeared deeper than previously thought.

The MPC did not materially change its assessment of the euro zone in September, and said that while business surveys continued to back its assessment of "modest underlying expansion", some expectations components were more worrying.

Figures released on Tuesday showed that inflation edged down to 2.5 percent in August from 2.6 percent the month before. The Bank forecasts it will be just above its 2 percent target by the end of the year. (Reporting by David Milliken and Olesya Dmitracova)

BoE sees worse inflation outlook, one member sees case for more QE

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