MPC minutes suggest further asset purchases are likley - ITEM Club

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Nida Ali, economic advisor to the EY ITEM Club, comments on today’s MPC minutes:

  • The tilt towards more QE is somewhat surprising and contrary to recent statements by MPC members
  • The Bank has clearly built in the QE implications of repatriating the QE proceeds to the HM treasury, explaining the 8-1 split in the vote
  • We would be wary of relying too heavily on QE as a policy tool and are more in favour of the Bank's other policy measures such as the Funding For Lending Scheme

“The Bank's inclination towards more QE is somewhat surprising. Contrary to their previous statements, the minutes now suggest that not only are further asset purchases possible in the future, but their effectiveness has increased.

“In our view, gilt yields are already at record lows and unlikely to fall further, so we would be wary of relying too heavily on more QE as a policy tool in the current climate. Instead we are more in favour of other unconventional measures taken by the Bank recently.

“The latest data from the Council of Mortgage Lenders suggests that the Bank's Funding For Lending Scheme (FLS) is having an encouraging effect both on the availability and prices of mortgages. This is consistent with our view that the FLS is likely to have a positive impact on the real economy, particularly in the mortgage markets.”