BoE minutes for October 6 monetary decision showed a unanimous vote for all the nine MPC members to hold borrowing cost at 0.50% while boosting the Asset Purchase Facility (APF) by 75 billion pounds to reach 275 billion pounds.
After the release of the news the pound advanced against the dollar to trade around 1.5750 while recording a high of 1.5777.
The minutes revealed that "the asset purchases would be of nominal gilts, conducted over a four-month period, and spread evenly across residual maturities over three years," referring that "depending on developments in the euro area and financial markets, the size of the stimulus could be adjusted in either direction."
Finally, policy makers responded to the ongoing calls from Adam Posen for increasing the size the stimulus for the first time since adding 25 billion pounds to a total of 200 billion pounds on November 5, 2009 to prevent the economy from witnessing another recession.
The main aim of expanding the non-standard measures is to spur the sluggish growth as the recent data showed a significant slowdown on the back of the sluggish global growth and the European sovereign debt crisis.
The bank preferred to act in October rather than delaying the decision to November, after the release of November's inflation report, as this may lead to further deterioration.
U.K. GDP for the second quarter was downwardly revised to 0.1% from the preliminary of 0.2% while the annual reading was also revised down to 0.6% from 0.7%.
By extension, services' sector expansion eased to 51.1 in Sep. compared with 52.9 in Aug, construction showed a drop to 50.1 in September from 52.6, providing strong clues that the sluggish growth pace more likely to continue. Yet, manufacturing showed an expansion of 51.1 from a revised of 49.4 a month earlier.
Last week, policy maker Adam Posen said that increasing the size of the stimulus should be enough “to make a material improvement in prospects versus what it otherwise would be and it’s the right place for us to start,” referring that the bank is ready to add more stimuli to prevent what Mervy King has called the worst financial crisis ever.
Regarding inflation, the bank sees that domestic inflation is contained and expected to fall below target over the medium term, after rising to 5% and remaining above target over in the near term, then falling sharply in 2012.
It seems that the BoE may face a trade off between shoring up the economy and taming inflation as expanding the APF will probably result in swelling inflation levels, thus the bank may end up with solving one problem by introducing another.
