Monetary Policy Committee unanimous for QE

Members also voted unanimously to keep the base rate at 0.5% for a 32nd consecutive month.

The announcement of the minutes followed a speech by Mervyn King, governor of the Bank of England, last night at the Institute of Directors in St George’s Hall, Liverpool, where he said inflation had peaked and would fall back sharply next year.

King said: “In contrast to headline inflation, domestically generated inflation remains subdued - and on some measures barely above zero. Increases in energy prices, import prices and VAT account for the current high level of inflation.

“Once the effect of these temporary factors begins to dissipate, inflation should fall back sharply early next year.”

The consumer price index measure of inflation hit 5.2% in September, up from 4.5% from August. King said that this was the reason for the MPC’s decision to resume its asset purchase programme, to ensure it does not fall below the target 2% rate.

Minutes showed that the MPC considered a range of asset purchases between £50bn and £100bn before settling at £75bn.

The Bank of England said that earlier asset purchases had had economically significant effects and that there appeared to be no strong reason to expect the economic effect of further asset purchases to be materially different.

It did concede however that there was considerable uncertainty about the magnitudes of the impact of the first round of asset purchases.

The asset purchase programme is the Bank of England’s version of quantitative easing. As opposed to printing money, the central bank will purchase assets from financial institutions who will then have “new” money in their accounts.

This should spur further lending towards businesses and individuals and promote an increase in the amount of activity in the economy.

Theoretically, when the economy has recovered, the Bank of England sells the bonds it has bought and destroys the cash it receives. That means in the long term there has been no extra cash created.