Intrerest rates and stimulus measures maintained but two MPC members object Go compare with our comparison table

Intrerest rates and stimulus measures maintained but two MPC members object

20 October 2010 / by Paul Dicken

Seven of the nine members of the Bank of England Monetary Policy Committee voted to keep interest rates at 0.5 per cent last month.

The two members who opposed the measure were arguing for different policy measures, pointing to division amongst policy makers about what will happen to the economy.

External member of the committee, Adam Posen said the bank rate should stay at 0.5 per cent but the asset purchase programme (an economic stimulus measure) should be increased.

At the other end of the debate external member Andrew Sentance preferred a 0.25 per cent increase in the interest rate, with the asset purchase programme maintained at £200billion.

The minutes of the monetary policy committee meeting in October show the possibility of further measures to stimulate the economy remain on the table but indicate the committee will await the inflation report in November before making any policy changes.

Improving access to credit for large firms and bank funding were seen as boosting demand in the private sector, along with the depreciation of sterling and higher equity prices. But risks to economic growth were identified by the committee.

“On an alternative view, however, real disposable income growth had been weak and the apparent recovery in consumer spending might be dampened as the impact on household income of the fiscal consolidation became more readily apparent,” the minutes said.

The fears that slowing domestic demand from UK consumers, in part as a result of public spending cuts, will affect the economy have been compounded by a view that exports have not grown as expected following the fall in the value of the sterling currency.

It had been expected that the fall in sterling would boost exports from the UK around the world, but data has yet to show ‘noticeable positive contribution to growth’.

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