King Loses Final BOE Vote as Majority Sees RecoveryScott Hamilton
Bank of England Governor Mervyn King lost his final monetary policy vote this month as the majority of officials blocked his bid for more stimulus and said Britain’s economic recovery was taking hold.
The Monetary Policy Committee voted 6-3 to keep the target of its bond-purchase program at 375 billion pounds ($587 billion). All nine also opted to keep the key interest rate at a record-low 0.5 percent, according to the minutes of their June 5-6 meeting published today in London.
“The recovery was becoming more established,” the majority said, according to the minutes. “The effects of the committee’s previous round of asset purchases were still working through, and together with the Funding for Lending Scheme, should continue to boost activity.”
While officials noted that the inflation outlook was “a little more favorable,” the majority said that inflation may continue to be well above the 2 percent target for the rest of the year. King, who is due to retire at the end of the month and be replaced by Canadian Mark Carney, has been voting to increase quantitative easing by 25 billion pounds along in the minority with two other MPC members since February.
The pound erased gains after the minutes were released and was trading at $1.5634 as of 9:33 a.m. London time, down 0.1 percent on the day. The yield on the benchmark 10-year U.K. government bond dropped 2 basis points to 2.11 percent.
“For other members, the case for more monetary stimulus remained compelling,” the minority said. “Projections implied only a modest recovery in growth and relatively little improvement in unemployment.”
King and the two others in the minority -- David Miles and Markets Director Paul Fisher -- also said that there was a need to rebalance the economy, hurting growth, while euro-area risks remained “substantial” and domestic cost pressures were weak.
Inflation is still “more likely than not” to be around the 3 percent upper limit in the summer of this year and remain close to that through the fall, policy makers said.
“Overall, the committee judged that recent news was consistent with a slow but sustained recovery in growth over 2013,” the minutes said.
Recent data has shown strength in the U.K. economy after gross domestic product expanded 0.3 percent in the first quarter following a contraction the previous three months and the BOE forecasts 0.5 percent growth in the current quarter. Measures of services and manufacturing were at 14-month highs in May.
While King has said there are “signs now of a recovery” in the economy, growth isn’t as fast as he would like and he has said more stimulus is needed to fix slack in the labor market. The outgoing governor will give his views on the economy when he delivers his last annual Mansion House speech at 9 p.m. in London today.