Bank narrowly voted against extension of quantitative easing

Governor Sir Mervyn King was among four members of the Bank’s monetary policy committee to call for an extension of the UK’s quantitative easing scheme but they were outvoted by the five other members.

The minutes of the meeting two weeks ago reinforce expectations in the City that the Bank will sanction a further £50bn of asset purchases on July 5, taking the QE programme to £375bn.

Members discussed cutting interest rates below the current record low of 0.5 per cent but decided that an expansion of QE would be more effective.

Those who voted for no change in the QE programme did so because they wanted to see how the eurozone crisis unfolded and to check that inflation would fall as expected.

The latest figure on CPI inflation was published by the Office for National Statistics Tuesday and showed a bigger than expected drop to 2.8 per cent.

Richard Driver, a currency analyst at Caxton FX, said the minutes signalled a major shift in the committee’s stance. He added: “With eurozone risks intensifying, inflation having unexpectedly eased and the committee clearly very concerned with the UK’s ability to bounce back out of this double-dip recession, we are now fully expecting the pro-QE camp to have gained a majority by July’s meeting.”

The meeting was held at the same time as plans for a multibillion-pound emergency bank funding scheme to kick-start lending to households and businesses were being drawn up.

In their annual Mansion House speeches last week, Sir Mervyn and Chancellor George Osborne announced a proposal linked to bank lending performance in a direct attempt to free up the log-jam in credit hitting the economy.