Case for further quantitative easing gains momentum

The Bank of England narrowly decided against continuing its quantitative easing (QE) programme, minutes from this month's Monetary Policy Committee (MPC) meeting have revealed.

Minutes from the meeting held on the 6 and 7 June show that the majority of MPC members (five to four) had in fact voted in favour of launching a new round of monetary stimulus.

The total level of QE - the buying of gilts, effectively injecting cash into the economy - which is designed to kick-start the economy, currently sits at £325 billion.

Five members voted in favour of an additional round of QE worth £50 billion, including the Bank's Govenor Sir Mervyn King, taking the total to £375 billion. One member had preferred to increase the size of the asset purchase programme by £25 billion. Four members had voted against the proposition.

The minutes follow news this week that inflation fell to 2.8 per cent in May, effectively giving the Bank greater leeway to extend its QE programme.

Both factors have led to increased speculation in the press and amongst senior economists that further QE could be around the corner.

The MPC acknowledged that 'further stimulus was likely to become warranted at some point', but that key unfolding events, such as the Eurozone crisis and latest inflation figures, would have a 'material bearing' on a future case for more QE.

It also confirmed that the Bank would meet with the Government to discuss other 'complementary' measures, such as easing high street bank's funding costs to make it easier to lend.

The Government and the Bank of England met last week and confirmed a new bank lending scheme, worth between £80-£100 billion, aimed at easing the flow of credit to the public and businesses. It hoped the scheme would inject 'confidence' into the UK's financial system.