Most BoE Members See Need for Additional QE
THE TAKEAWAY: Most MPC members see need for more QE -> 5-4 vote to not add stimulus in June -> Cable stays supported
During their June meeting, most of the members of the United Kingdom’s Monetary Policy Committee forecasted that more quantitative easing will be necessary in the future. The minutes from the last BoE meeting also revealed that the vote to keep the asset purchase program at 325 billion was only won by 5-4.
Three of the members of the committee, including Governor Mervyn King, voted for an additional 50 million pounds of expansion, while Paul Fisher voted for an extra 25 billion pounds. The members were significantly more dovish in June’s meeting, as QE was outvoted 8-1 in the previous two meetings. However, the vote against cutting interest rates was unanimous among all 9 members.
The negative effect of the European crisis on international economies was mentioned multiple times in the BoE minutes. ‘Financial market events had again been dominated by developments in the Euro area,’ began the minutes.
The chances of the BoE increasing its stimulus program in the upcoming July meeting seems more likely following the minutes release and on yesterday’s news of the lowest UK inflation in 2.5 years. The annual inflation rate fell to 2.8% during May, which is still above the BoE’s target of 2% inflation.
Increased chance of stimulus is usually currency negative, which is why GBD/USD sharply dropped towards 1.5650 following the minutes release. However, cable immediately reversed those losses as market sentiment stays focused on the Fed’s QE decision which is set to take place later today.
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