BoE Minutes: Unanimous vote on steady interest rate and three-way split for APF

The Bank of England released its minutes showing that the vote was unanimous for leaving interest rates unchanged at 0.50%, while the seven of the nine members of the MPC wanted to extend the APF program of purchasing gilts by 25 billion pounds to 200 billion pounds.

The program is aimed at providing markets with the liquidity needed so that the lending system eases down, and banks start lending out to businesses and consumers, which will help end the economic deterioration in the UK. Also, the stimulus is set towards avoiding the decline in prices. 

The vote was split three ways; 7-1-1, where we saw policy maker, David Miles, want to expand the program to 215 billion pounds, while Spencer Dale wanted to leave the program steady at 175 billion pounds, as he stated that more money used in the program might arouse inflation risks in the long run, especially since it might trigger higher asset prices. 

Mile believes that more money injected in markets would "provide greater insurance against the downside risks to growth and inflation arising from constrained credit supply". 

The quantitative easing methods have helped lower the margin of spare capacity and halt the severe decline in the general price levels. In addition, this is increasing household and business spending, since banking systems currently can not be depended on as they continue to undergo tightened credit conditions.  

Officials will continue the asset program for three more months, which is when the February Inflation Report will be released; providing an outlook for economic activities and inflation since November's inflation report. 

Last week, Governor of the BoE Mervyn King, said that he has an "open mind" about continuing with the APF program further, since the bank estimates that inflation will approach the 2% even if the central bank begins to hike rates in 2010, while leaving APF at 200 billion pounds. 

The minutes also said that inflation in the short term to climb due to higher petroleum prices, while VAT cut back to reverse back to 17.5%, after Chancellor of the Exchequer ,Alistair Darling, had reduced it to the current 15%. 

As the economic outlook is improving, we have clear evidence,  because of the stimulus plans used by officials that are helping ease the economic deterioration.