Minutes from BoE
All nine members of the MPC voted to maintain the BoE’s asset purchase target at the 375 billion pound level agreed in July, but for some policymakers this decision was “finely balanced” and there was a good case for more.
The monetary policy maker wanted more time to assess the impact of the BoE’s new Funding for Lending Scheme (FLS) to boost bank credit, which started on August 1, as this could help the economy more than the central bank assumed in its August forecasts.
“For most members, the decision this month was relatively straightforward. Over the coming months, the committee could take stock of the impact of the FLS and the implications this had for other potential policy options,” the BoE said.
Last week the BoE slashed its growth outlook for this year to zero and sharply downgraded its medium-term forecast as eurozone “storm clouds” cast a long shadow and scars from the global financial crisis appeared deeper than previously thought.
The inflation is expected to fall close to its 2 percent target in the short term, and that third quarter growth would be weak, aside from a temporary boost from the Olympics and the fading of one-off factors depressing growth in the second quarter.
“Very substantial risks remained in the euro area,” the minutes said. “Even if a disorderly outcome were avoided, it was probable that the continuing threat of such an event would weigh on domestic activity for some time to come.”
Sterling’s recent strength against the euro in the face of the bloc’s weakness damaged hopes that the British economy would rebalance towards exports, the BoE said, but aside from that, lower inflation should help boost consumer demand. Britain’s economy shrank at its fastest pace in three years in the three months to June, contracting by 0.7 percent at a time when Germany and France were able to hold output steady or increase it slightly.
The interest rate remains unchanged as per August’s minutes.
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