David Prosser: MPC's flagship policy running out of time
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Your support makes all the difference.Outlook While Alistair Darling only gets a crack at set-piece economic announcements twice a year, Mervyn King has a monthly opportunity via the Bank of England's Monetary Policy Committee to bring his influence to bear. We'll get the MPC's latest pronouncement on interest rates and quantitative easing today.
A verdict of no change on both policy tools is the most likely outcome, but the three-way split on the MPC at last month's meeting suggests some difficult decisions ahead for the Committee, not withstanding yesterday's PBR. The desire of one member to see more money pumped into the QE programme than the majority opted for, while another member backed no change, reflects anxieties about the policy's efficacy.
Interestingly, Adam Posen, the MPC's newest recruit, voted with the majority to raise the QE pot by £25bn to £200bn, despite having talked publicly now on several occasions about why the Bank should begin work on a Plan B (or a Plan C if QE was the fall-back once interest rates could be cut no further).
That may change because for all the vast sums pumped into the economy via QE, the benefits remain unclear. Measures of money supply, on which the Bank has always said it wanted the policy's success to be judged, have stubbornly refused to register increases in growth. More obviously, the economy has not made it out of recession, at least on the official statistics.
It may be that the situation might now be much more dire had it not been for QE – and the policy may be working in other, less tangible ways – but questions about its continuation into 2010 as the prime weapon in the Bank's arsenal are becoming increasingly valid.
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