Bank of England policymakers considered further action to boost the economy this month amid concerns over tightening credit conditions and a slowdown in the UK recovery, it emerged yesterday.
Minutes of the bank’s August interest rate meeting showed the monetary policy committee discussed the need for more quantitative easing but opted to keep its programme to boost the money supply at £200 billion.
Members voted 8-1 to leave interest rates at a record low of 0.5 per cent, although the minutes revealed they also considered the arguments in favour of a small increase from the current “exceptionally low” level. Andrew Sentance remained the only member on the committee to vote in favour of a rise to 0.75 per cent.
Details of the MPC’s discussion came a day after figures revealed inflation had edged down from 3.2 per cent to 3.1 per cent – still well above the bank’s two per cent target.
The committee said that, in the last month, surveys had suggested a softening in business and consumer sentiment. And while growth in the second quarter was “surprisingly robust” it had also been erratic, the minutes added.
The committee considered arguments for further quantitative easing because credit conditions seemed set to remain tighter for longer than expected and there were suggestions of a slowing in output growth.
However, Mr Sentance argued that the economic conditions had improved over the past 12 months and that the inflation outlook had shifted sufficiently to begin the gradual process of raising rates.
He added that figures from the second quarter suggested the UK recovery was gathering momentum.
The minutes noted that UK inflation had been above target in all bar nine of the past 50 months. And the forthcoming increase in VAT will mean inflation is likely to stay above target for longer than previously expected.
ING economist James Knightley said that with the severity of the UK’s fiscal austerity measures, and with consumer confidence already softening, the bank will not look to raise rates until next year at the earliest.
He added: “We forecast GDP growth in a one to two per cent range for the next three years, which should dampen inflationary pressures.”