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.”
But other policymakers thought the market movements showed the difficulty of unwinding further monetary stimulus and that the costs outweighed the benefits
“The benefits of further asset purchases were likely to be small relative to their potential costs,” the minutes said of those members’ views. “In particular, further purchases could ... complicate the transition to a more normal monetary policy stance at some point in the future.”
Paul Fisher and David Miles again sided with King, warning of euro zone risks and weak wage growth in Britain.
Data out on Tuesday showed a bigger than expected 2.7 percent annual rise in British consumer prices in May, though the outlook for inflation remains more benign than a few months ago.
Last month the central bank forecast that inflation would peak at just over 3 percent later this year before falling to the 2 percent target by early 2015 - a view still broadly shared by the MPC and external economists.
Carney’s arrival may lead to the introduction of policies other than QE in Britain. He has promoted long-term public commitments to low interest rates during his time as Canada’s central bank chief, and Britain’s finance minister has asked him to assess the viability of this strategy in Britain.
Economists polled by Reuters earlier this month predicted that Carney will indeed give markets a steer on policy. As for more quantitative easing this year, they only saw a 45 percent chance of a top-up.
Additional reporting by Christina Fincher Editing by Jeremy Gaunt.