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By FXCompass — Wednesday, 17 February 2010

Bank of England expressed some concerns in its latest MPC minutes, which leads us to think the quantitative easing program might not be ready to be terminated yet, despite all members voting to cease its expansion.

This report confirms the view of some MPC members, including the Bank’s chief economist, Spencer Dale, who suggested a “wait-and-see” approach.

However, recent developments suggest that the BOE might have to restart its intervention.

Inflation, which is the first criteria of BOE’s monetary policy could still drop, as we have learned in the Governor’s letter to the Chancellor on the release of a 3.5% CPI.

The less than stellar job report released today does nothing to help household spending. The number of people in employment fell by 12,000 on the last quarter. More recently, the number of people claiming Jobseeker’s Allowance increased by 23,500, between December 2009 and January 2010.

Add into that the persistent sovereign risk, which could decrease European demand, and we have a solid case to expand QE.

We also feel that the last decision wasn’t an obvious one:

“Taken together, all members felt that the arguments in favour of leaving the size of the asset purchase programme unchanged at this meeting were more persuasive. But for some members, the arguments were very finely balanced.”

Finally, the MPC opens the door to further expansion:

“The Committee would be able to provide further monetary stimulus should the outlook for inflation in the medium term warrant it.”

“The Committee would be able to provide further monetary stimulus should the outlook for inflation in the medium term warrant it.”