King, Miles Opt for Consensus in Unanimous BOE Vote

By Jennifer Ryan

Sept. 23 (Bloomberg) -- Bank of England Governor Mervyn King agreed this month to support policy makers’ August decision for 175 billion pounds ($286 billion) of asset purchases, suspending his drive to buy even more.

King and David Miles switched sides and joined a unanimous vote for no change in the plan, arguing that consensus was better for now even though a higher amount may be warranted. All nine members of the Monetary Policy Committee also opted to keep the interest rate at 0.5 percent, minutes of the Sept. 10 decision released by the central bank today in London showed.

King and Miles had sought as much as 200 billion pounds at the August decision. The Confederation of British Industry today raised its forecast for economic growth in the third quarter and predicted the central bank may cap its program after buying the current allocation with newly printed money.

“We probably have seen the worst of the recession,” said Colin Ellis, an economist at Daiwa Securities SMBC in London and a former Bank of England official. “A further extension of asset purchases could be on the cards, but it’s a difficult balancing act for the bank.”

The pound rose as much as 0.6 percent against the dollar after the report to $1.6438. Against the euro, the U.K. currency climbed by the same amount to trade at 90.03 pence as of 10:01 a.m. in London.

“For those members who had preferred a larger stimulus at the August meeting, a larger asset-purchase program could still be justified,” the minutes said. “But in the absence of significant news about the medium term, the case for adjusting the program now was outweighed by the benefits of following through with the program” announced in August.

Risks to Growth

Policy makers noted that prices of assets including housing and equities had risen, and the short-term risks to economic growth had lessened.

“There was a possibility that the recovery in asset prices and confidence could mark the start of a virtuous upward spiral for the economy,” the minutes said. “But the lesson from previous financial crises was that they were not resolved quickly, and that there could be false dawns.”

The slump in house prices is abating, and the British Bankers’ Association said today that mortgage approvals held close to the highest in a year in August. Property surveyors reported more gains in home values than declines for the first time in two years, a report by the Royal Institution of Chartered Surveyors showed on Sept. 15.

‘Less Pessimism’

Timothy Besley, who left the committee at the end of August, voted with the minority in August for an expansion of the purchase plan. Adam Posen replaced him at this month’s decision.

“The tone appears to be one of slightly less pessimism than in previous months,” said Peter Dixon, an economist at Commerzbank AG in London. “When we get to November there may be no need to do any more.”

The central bank has bought almost 150 billion pounds in assets so far and plans to complete the current program by November.

The Bank of England may stop buying bonds then as the U.K. shakes off the recession, the Confederation of British Industry said today. Gross domestic product will rise 0.3 percent in the third quarter, the biggest U.K. business lobby said, reversing a June prediction for a drop of the same size.

“Even if GDP growth had turned positive in Q3, it was unlikely to have reached the point where the level of spare capacity was shrinking,” the minutes said. At the same time, “inflation would probably be higher in the short-term than the committee had thought a month ago, though it was still likely to be extremely volatile,” the minutes said.

To contact the reporter on this story: Jennifer Ryan in London at Jryan13@bloomberg.net