Bank of England puts stimulus debate aside at first Carney meeting

Wed Jul 17, 2013 9:35am EDT
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By David Milliken and William Schomberg

LONDON (Reuters) - The Bank of England's new governor, Mark Carney, and all his fellow policymakers voted against more stimulus for the economy earlier this month, unexpectedly setting aside differences ahead of a potentially big policy change in August.

The 9-0 vote against more bond-buying - the second big surprise of Carney's two-and-half-week governorship - made the pound jump and British government bond prices fall.

The BoE must report to finance minister George Osborne early next month on whether to start giving clear signals on the future direction of interest rates, something Carney did in his previous job as Canada's central bank chief.

Such "forward guidance" can itself act as a monetary stimulus if it means rates remaining low, so that could mean the end of bond purchases as the BoE's main tool for trying to build on signs of recovery in Britain's economy.

"The voting pattern is probably best interpreted as a truce," said Marc Ostwald, a bond market strategist at Monument Securities in London.

"Even those ... members who were pressing earlier this year for an increase in the Bank of England's stock of asset purchases now accept there may be other, more effective, means of delivering monetary stimulus," he said.

A minority of BoE policymakers had tried unsuccessfully to restart the central bank's bond purchases since November.

At the July 3-4 meeting, minutes of which were released on Wednesday, they said the economy still needed more help but they were holding fire until the bank had decided whether to provide clearer guidance on future interest rates.   Continued...

People walk and jog past the Bank of England, London June 15, 2012. REUTERS/Paul Hackett