Published March 20, 2013
LONDON – The Bank of England is worried about further sterling weakness and remains at an impasse over providing more support for Britain's stagnant economy, minutes of its March 6-7 policy meeting showed on Wednesday.
Policymakers voted 6-3, the same as in February, against restarting the central bank's bond purchase programme to stimulate growth, with some officials expressing concern that more asset purchases could lead to an unwarranted weakening of the pound.
Governor Mervyn King, markets expert Paul Fisher and external member David Miles remained in a favor of a further 25 billion pounds of purchases that would take the total to 400 billion pounds, but were unable to convince their other colleagues.
Britain's economy has been stagnant for the past two years, and later on Wednesday finance minister George Osborne will be under pressure to come up with a recipe to deliver growth at his annual budget - which may potentially include change or a review of the central bank's inflation-fighting remit.
Policymakers agreed that the economic outlook had changed little since their February meeting, though the inflation outlook was slightly higher, in part due to a further fall in sterling.
"It remained probable that growth would pick up as the year wore on," the minutes said.
The pound has fallen as much as 8 percent against the dollar since the start of 2013, and its weakness appeared to be a source of growing concern in the minutes.
"It ... remained appropriate to accommodate the first-round impact on CPI of movements in sterling, insofar as those movements reflected real factors," the minutes said.
"Prospective movements in the exchange rate that reflected perceptions that monetary policy would remain excessively loose, or that the MPC's commitment to meeting the inflation target in the medium-term was diminished, would be a different matter."
Last week King said sterling was fairly valued, having previously highlighted the need for Britain's exchange rate to adjust to reflect its reduced competitiveness since the financial crisis.
External MPC member Ian McCafferty has said that a further fall in sterling would have "damaging" inflation consequences.
Consumer price inflation rose to a nine-month high of 2.8 percent in February, data showed on Tuesday. The central bank forecasts it will rise above 3 percent later this year, and will not return to its 2 percent target until early 2016.
The Bank of England's 375 billion pounds of government bond purchases to date are equivalent to about a quarter of British gross domestic product, almost double the same measure of the U.S. Federal Reserve's ongoing quantitative easing program.
Later on Wednesday, Osborne is expected to announce minor changes to the BoE's anti-inflation remit, and potentially a broader review, in order to make it easier for the central bank to boost growth.
The arrival of new BoE governor Mark Carney, who replaces King on July 1, will also herald further changes.
King has said he would welcome a change to the remit that made it clearer that the central bank is right to look through short-term price shocks, but does not see a need for broader change.
The minutes made no mention of alternative policy options which were considered in February.
(Reporting by David Milliken and William Schomberg)