Finally, the three-way split into one hawk, one dove — and seven undecided — has occurred at the Bank of England.
From the minutes of the Monetary Policy Committee’s October meeting:
Seven members of the Committee (the Governor, Charles Bean, Paul Tucker, Spencer Dale, Paul Fisher, David Miles and Martin Weale) voted in favour of [keeping rates at 0.5 per cent and maintaining the asset purchase programme at £200bn]…
Two members of the Committee voted against the proposition. Adam Posen preferred to maintain Bank Rate at 0.5% and increase the size of the asset purchase programme by £50 billion to a total of £250 billion. Andrew Sentance preferred an increase in Bank Rate of 25 basis points, and to maintain the size of the asset purchase programme at £200 billion.
The minutes also go into detail on why Posen and Sentance are taking such different views on Bank policy. First, Posen’s take:
In this member’s view, the current degree of spare capacity in the economy was sufficiently large that monetary policy could afford to encourage more rapid growth without risking an undesirable increase in underlying inflationary pressures. Absent such additional stimulus, inflation would fall well below the target in the medium term. And the stability of measures of inflation expectations and wages over several months indicated that the likelihood of their rising sufficiently to cause an overshoot of the inflation target in the medium term was smaller than previously feared. For this member, an increase in the size of the asset purchase programme at this meeting would reduce both the risk of inflation falling materially below the target after the temporary factors that were boosting it had dissipated, and also the risk that a period of subdued growth would have a self-reinforcing effect diminishing the supply capacity of the economy.
Whereas for Sentance:
Another member continued to take the view that it was appropriate to begin to withdraw some of the exceptional monetary stimulus that had been provided by cutting Bank Rate to 0.5% alongside the Committee’s programme of asset purchases. Although some slowdown in growth might be occurring in the United Kingdom and overseas, this had to be seen alongside the strong momentum of growth in the first half of the year. The pace of growth was bound to be variable at early stages of the recovery. Meanwhile, inflation remained above the target and could increase further with upward pressure from a higher standard rate of VAT and rising oil and other commodity prices. In the view of this member, by failing to respond to persistent above-target inflation, which was forecast to continue for some time, the Committee risked a loss of credibility that would be damaging to business and consumer confidence over the medium term.
So much for those two. Following a dovish speech by Governor Mervyn King this week, it’s looking likely that others will get to declare their hand at November’s meeting.