Bank of England meeting minutes analysis: more QE from March?

The minutes of the Bank of England's Monetary Policy Committee (MPC) meeting held on January 11 and 12 were released this morning. They paint a picture of an MPC which was just feeling an incremental iota of confidence in the economy - both domestically and on an international level. The dangers of the Eurozone crisis were duly noted, especially the Greek situation, but mention was also made of the calming effect of the European Central Bank's recent supply of ample three-year liquidity to banks. The tentative signs of recovery in the US were also noted, as was the absence of an abrupt Chinese slowdown, thus far.

Comments on inflation
The minutes say: 'To the extent that inflation continued to fall sharply over the next few months, the upside risk to inflation expectations would be lessened and the Committee could be slightly more confident in its judgements about the recent drivers of inflation.' I take this as a clear sign that, whereas the MPC is happy to see that inflation has begun its long-predicted fall, it wants to see a few more months of data before sounding the all-clear.

Quantitative Easing
The most relevant quote from the minutes is: 'For some members, the risks of undershooting the target meant that a further expansion of asset purchases was likely to be required. Some of those members also noted a downside risk to inflation arising from the possibility that the reduction in the economy’s supply potential following the recession had been less, and hence spare capacity greater, than assumed in the Inflation Report. But there was no compelling need to increase the scale of the programme of asset purchases before completing those already announced. For other members, the risks to inflation were more finely balanced and it was less clear that inflation would fall below the target in the medium term. Annualised three-month inflation rates were still above the target. Looking ahead, particular concerns included: the risk of price pressures from firms seeking to increase margins; and the fact that even if wage growth were to remain subdued, wages might add to inflationary pressures if productivity growth were also weak.'

In plain English - the MPC might announce an increase in the asset purchase programme at the February meeting but, taken in tandem with the comments above about wanting to see more months' worth of falling inflation data, don't be surprised if it doesn't announce anything in February, and we might even have to wait beyond the March meeting for this.