CRISIS AT THE BANK – Division over quantitative easing

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The Bank of England Monetary Policy Committee (MPC) was divided over its ‘quantitative easing’ policy of printing money this month.

The Minutes of the last MPC meeting of November 4th and 5th state ‘there were a number of headwinds that would be likely to impede the recovery. . .

‘Most Committee members . . . favoured an extension of the asset purchase programme. . . .

‘Additional asset purchases would support household and business spending, attenuating downside risks, including from the ongoing weakness in the banking system and the anticipation of further fiscal consolidation. . . .

‘Most members thought that purchases totalling an additional £25 billion would be appropriate given the balance of risks to inflation.

‘One member favoured an expansion of £40 billion in order to provide greater insurance against the downside risks to growth and inflation arising from constrained credit supply. . . .

‘While . . . one member also stressed the potential risks of such a policy. Monetary policy was already extraordinarily stimulatory. . . .

‘There was also a risk that further substantial injections of liquidity might result in unwarranted increases in some asset prices that could prove costly to rectify, complicating the task of meeting the inflation target in future.

‘Overall, this member judged that these risks were best balanced by maintaining the current stance of policy. . . .

‘Seven members of the Committee (the Governor, Charles Bean, Paul Tucker, Kate Barker, Paul Fisher, Adam Posen and Andrew Sentance) voted in favour of the proposition (to hold rates at 0.5 per cent and extend monetary easing by £25bn).

‘Two members of the Committee voted against the proposition.

‘David Miles preferred to increase the size of the asset purchase programme by £40 billion to a total of £215 billion.

‘Spencer Dale preferred to leave the size of the asset purchase programme unchanged at a total of £175 billion.’

l Don Robert, chief executive of Experian, the world’s largest credit-checking company, has said that banks in the US and Europe are recovering but those in the UK remain ‘more challenged than in any other market’.

He added: ‘The most troubling part is that I’m not convinced defaults have yet peaked.

‘None of the UK banks are even thinking about growth. They are playing a very defensive game. Some are even saying they will let the book run off a bit.’

Robert said consumers are repaying loans but UK banks are reluctant to lend, which is ‘bad for the economy’.

By contrast, in the US ‘the “open for business” signs are out in a cautious way’, and Europe, is ‘showing signs of life’.