Bank of England, still divided, flags market impact of Fed uncertainty

Wed Jun 19, 2013 7:38am EDT
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By Olesya Dmitracova and David Milliken

LONDON (Reuters) - Bank of England policymakers acknowledged earlier this month that further market volatility could be on the way because of uncertainty about the direction of U.S. monetary policy, but came no closer to shifting their own stance.

Minutes of its latest policy meeting, released on Wednesday, show the BoE remained deadlocked over whether to restart its own asset-buying stimulus, with outgoing Governor Mervyn King again in a minority voting for another 25 billion pounds ($39 billion) of asset purchases.

The June 5-6 Monetary Policy Committee meeting, King's last, decided economic developments in Britain had been generally positive in the past month and consistent with the bank's May forecast of a slow but sustained recovery this year.

However, the MPC said markets were less calm about expected actions by the Fed and the Bank of Japan, and that there was "potential for continued volatility".

Some among those MPC members who oppose more asset purchases, or quantitative easing (QE), saw market reaction to speculation that the Fed might slow its bond buying as evidence that another round of stimulus in Britain could be effective.

"Although an expansion in asset purchases was not warranted at this meeting, those events illustrated the likely effectiveness of asset purchases should they be needed in the future," the minutes said.

Economists said this, combined with calls for the increase in stimulus by King and two others of the nine MPC members, suggested that the committee on the whole was warming to the idea of another cash boost for the economy, just before the new governor, Mark Carney, arrives next month.

"The minutes serve as a reminder the MPC retains a dovish bias," said Ross Walker, economist at RBS. "The on-hold majority noted the rise in bond yields in response to Fed tapering concerns and hinted more QE could be done in response to that."   Continued...

The Bank of England building is seen in central London March 20, 2008. REUTERS/Toby Melville