Change in MPC’s voting pattern, in favour of more QE, was a surprise says EY ITEM Club

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Nida Ali, economic advisor to the EY ITEM Club, comments on the MPC minutes:
  • The change in the MPC’s voting pattern, in favour of more QE, was a surprise
  • The benefits of further gilt purchases are limited, so the discussion of alternative policy tools is welcome
  • We need a debate around the structure and implementation of monetary policy

“The change in the MPC’s voting pattern, in favour of more QE, comes as a bit of a surprise, especially in light of last week’s Inflation Report where the Bank’s inflation forecasts were revised up and the Governor hinted at fears that monetary policy was becoming a blunt instrument in the face of supply side weakness.
 
“We are strongly in favour of further monetary easing. But, like the MPC, we are concerned that the benefits of more gilt purchases might be quite limited. The Funding for  Lending Scheme looks as if it is starting to have a positive impact and the suggestion that the MPC is thinking about new policy options is encouraging.
 
“There is a clear need to debate the structure and implementation of UK monetary policy and to consider the merits of alternative policies, such as following the US Federal Reserve in adopting numerical thresholds for variables other than inflation or targeting nominal GDP. Indications that the MPC intends to introduce greater flexibility in the time horizon, which dictates when inflation must reach its target, is a step in the right direction.”