Glimpse Of BOE Division And Confusion, MPC Minutes Show

The minutes of the Bank of England's Monetary Policy Committee (MPC) meeting on 9/10 November reveal unanimous votes in favour of keeping rates at 0.5 per cent and the asset purchase programme unchanged at £275m. However, careful inspection of the minutes does perhaps give a glimpse of a committee that is somewhat more divided and confused than these votes might suggest.

On employment
The MPC says, 'Alternatively, the total reduction in public sector employment might turn out to be greater than initially projected. Surveys of businesses’ employment intentions had been consistent with slower employment growth in the private sector'. In other words, pretty downbeat.

On inflation
'There remained little evidence to suggest that above-target CPI inflation had begun to generate rapid wage growth – perhaps not surprisingly given the weakening in the labour market', and 'There were substantial uncertainties, however, over how fast and how far inflation would fall.

There remained a range of views among Committee members over the likely effects of these various influences. On balance, the Committee judged that, based on the conditioning assumptions described above, inflation was more likely to be below the target than above it at the forecast horizon' but, 'Some members noted that the balance of risks to inflation in the November Inflation Report projections meant that a further expansion of the asset purchase programme might well become warranted in due course; anticipation of that might itself have an effect on asset prices and demand. Some other members judged that the risks to inflation around the target were more balanced' and, 'It was noted that inflation was currently materially above the target and it remained a possibility that it would be slower to fall during 2012
than the pace implied by the Committee’s central projections' and, 'In the light of the scale of the challenges posed by the domestic and global environments, the likely undershoot of the target was not very large and inflation was in any case projected to be rising towards the end of the forecast period.' Mmmm, quite balanced.

On consumption
Although property transactions had remained very low compared with historical averages, mortgage approvals for house purchase had risen slightly in the third quarter, indicating a certain resilience in the housing market in face of heightened uncertainty. Taken together, these indicators of expenditure did not imply a faster rate of decline in household spending than seen in the first half of the year. Slightly positive.

On growth
But given the weakening in the near-term outlook, the level of output was likely to be lower than projected in August throughout the forecast period. Pretty downbeat.

On the Eurozone crisis
But failure to respond successfully to those challenges would have significant adverse consequences for the world and UK economies. Downbeat.

On the asset purchase programme
The Committee noted that the existing programme of asset purchases would take a further three months to complete and market capacity made it difficult to increase the monthly rate of purchases substantially above what was already under way. Almost chomping at the bit to do more!

Conclusion
There's enough uncertainty in the global economic landscape to keep rates on hold throughout 2012 and we will probably see more Quantitative Easing in Q1 2012.