Published October 17, 2012
LONDON – The likelihood that the Bank of England might approve more economic stimulus next month decreased on Wednesday as minutes from the latest policy meeting showed the rate-setters disagreed on the program's effectiveness and official figures showed the unemployment rate has dropped.
According to the minutes, the nine members of the Monetary Policy Committee agreed unanimously not to expand the program this month — as widely expected — because "there was little to be gained at this meeting in changing the current program." But they were divided on the merits of increasing the stimulus in the future.
The MPC has so far authorized 375 billion pounds ($606 billion) to purchase government bonds and other high-quality assets. The latest authorization for 50 billion pounds is expected to be completed by the time of the November meeting, when many analysts expect a further expansion in the program, known as quantitative easing.
The minutes, however, said the panel was divided on the likely impact of any further purchases.
"It is a close call whether a majority votes for more QE next month," said Vicky Redwood, chief U.K. economist at Capital Economics. "But the fact that at least some members are clearly convinced of the need to do more persuades us to stick with our forecast of a 50 billion pounds increase."
The MPC noted some "early positive indications" of the success of the government-backed Funding for Lending Scheme, a separate program which is intended to encourage banks to lend more to households and companies.
Signs of a pickup in the labor market may also encourage the Bank of England to hold back on more stimulus — the unemployment rate in the June-August period fell to 7.9 percent, from 8.1 percent in the previous three months, according to official statistics.
Employment grew 212,000 during the period to 29.6 million, the highest since records began in 1971, the Office for National Statistics said. Part-time employment increased to a record high of 8.13 million.
"The strong growth of employment so far this year, alongside positive business surveys, has been a factor restraining the Bank of England from injecting even more stimulus into the economy," said Chris Williamson, chief economist at financial data company Markit.
Although business surveys indicate that the U.K. economy is softening, making further stimulus likely, "today's numbers clearly reduce the likelihood of an early move in November," Williamson said.