The BoE boss, Mervyn King, has been undermined quite dramatically within the walls of Threadneedle Street. In the February meeting of the Monetary Policy Committee, King raised his hand in favour of pumping more money into the financial system (known as quantitative easing). He was met with 6-3 opposition to expanding the scheme up from its existing level of £375bn.
The disagreement has been revealed in the minutes from the MPC’s meeting. Currency markets have not reacted well to the news that the committee is not perfectly united: against the dollar this afternoon, the pound was down 0.75% to $1.53, and down 0.8% against the euro to 1.14 euros. That’s not to say that Sterling has ever been the strongest currency out there – check out the fall in the value of the pound since the ‘70s in this graph. (Hat-tip to Ed Conway).
Just three members of the committee, Merv, Paul Fisher and David Miles, voted to increase the amount of cash spent on QE to £400bn. Previously, only Miles had been fighting for the increase, but King and Fisher came on board in something of a surprise move.
There is one positive though, which is that markets (separate from currency rates) saw the split vote as evidence that there may be a chance of upping QE provision at a later date. Thankfully this meant that the apparent division has not dented wider market confidence – the FTSE 100, for example, reached a five-year high on Wednesday afternoon.
And there are other reasons for investors and lenders to feel safe, too: the BoE indicated just recently that it is ready to allow a period of inflation which goes above its 2% target in order to help offset debt and the associated costs. This would hopefully keep the economy stable until the Holy Grail of economic growth actually returns.
Above all, the direction of monetary policy for the BoE is fairly uncertain this year anyway, as Canadian banking veteran Mark Carney is due to take over from King in June. Whether or not he will stick to inflation as the key focus (as King has), or whether he will be pushing for further QE, or other economic lever-pulling remains to be seen…