No reprieve in sight for households, warns Bank

Official data released just before Bank Governor Mervyn King and other top officials appeared before the Treasury Select Committee showed the biggest fall in households’ disposable income in more than 30 years, against a backdrop of sluggish overall economic growth.

However, with inflation at a two-and-a-half year high of 4.5 per cent, and only forecast to ease slowly, policymakers are divided on whether the Bank might need to revive its quantitative easing programme to pump more money into the economy.

The Bank has kept rates at a record low of 0.5 per cent since March 2009, and earlier this year economists had expected a rate rise before now.

Any prospect of a rate rise has now disappeared into 2012 as far as the markets are concerned and talk turned to prospects of more asset purchases this month, after policy minutes revealed some MPC members other than habitual dove Adam Posen had discussed the option following a run of weak data.

External MPC member David Miles said yesterday that he considered more asset purchases could be an option for the future.

But Bank Deputy Governor Paul Tucker, in a subsequent appearance before the select committee, said the Monetary Policy Committee was not uniformly moving in the direction of more QE, and that the bar for him to support this would be high.

“I’m one of those that is worried about an upward drift in inflation expectations,” he said.