Article written by Eve Cook
Bank of England divided over its approach
In the UK, the Bank of England (BoE) remains divided on the issue of stimulus programs. Earlier this month it acknowledged that market volatility was likely to continue, due to the uncertain direction of US monetary policy. Minutes of the BoE’s latest policy meeting showed members were split over whether the Bank should restart its own quantitative easing policy, with outgoing Governor Mervyn King outvoted in his bid to extend the £375 billion (US$580 billion) program. Mr King argued that although there are signs of a modest recovery in Britain, economic growth is still too slow and unemployment is too high.
The committee members who agree with Mr King’s position have pointed to eurozone risks and weak wage growth to make the case for further stimulus in the UK. Others feel that the market’s reaction to the Fed’s announcement on Thursday proves that such measures can be effective, but that they are simply not needed at this point in time. Still others argue that the recent market volatility proves that the benefits of quantitative easing are dubious when compared to the overall cost. They also said it will be difficult to normalise monetary policy when these programs inevitably come to an end. For now, the committee has decided that recent economic developments have been consistent with the BoE’s forecast of a slow but sustained recovery this year, and have therefore vetoed any further stimulus measures.