UK: BoE Uncertain of Underlying State of Economy

Posted December 19, 2012 by rvillareal

• Surprising few, the minutes to the 5-6 December BoE MPC meeting showed the committee still to be split somewhat over its decision to keep the asset purchase program target unchanged at £ 375 bln.
• Unlike at the November meeting, there was no further clear discussion (and therefore possibly division) in regard to the impact of asset purchases. 
• Most of the MPC agreed that developments on the month had done little to alter the balance of arguments between maintaining and increasing the size of the monetary stimulus.
• The Minutes (again) pointed to discomfort with the gradual appreciation of the pound in the last year or so. However, rather than purely being a reflection of the modest rise in the trade-weighted level of sterling, the worry was highlighted more about the real appreciation of the currency, the latter very much aggravated by the rise in unit labor costs.
• DE View: These Minutes portray an MPC possibly more split than the token dissent would suggest; pointing to a BoE likely to be on hold for some time as it grapples to get a better gauge of what the economy is actually doing, hoping for a diminution of uncertainty, both to assess the economic outlook and also as this may allow existing stimulus measures to take greater effect.

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