Oct 2012 MPC minutes: the key points

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The minutes for the MPC's October meeting were released this morning

The decision:

The committee voted unanimously to maintain the bank rate at 0.5% and continue with the programme of asset purchases totalling £375bn

There were some differences of opinion on the committee as to whether the asset purchase programme should be scaled up, but there was agreement to continue with the current programme of purchases and wait until there was more information in the next Inflation Report in November.

The background:

Financial markets

  • ECB announced a programme of Outright Monetary Transactions
  • Federal Reserve announced it would continue to engage in monetary easing until there was a sustained improvement in labour market
  • Bank of Japan also announce further stimulus
  • Yields on short-term government bonds in Spain and Italy have fallen

International economy

  • Output growth soft in many advanced and emerging economies
  • In the US employment growth had been weaker than at the start of the year but there were positive signs in the ISM (a leading indicator index similar to the PMI)
  • Oil prices fell a little on the month

Money, credit, demand and output

  • ONS revised up its estimate for GDP change in the UK in Q2 to a 0.4% contraction
  • Net trade was a drag on growth in Q2
  • Household credit growth was slow
  • FLS likely to have eased access to credit for some households and companies but it is likely to take longer for FLS to feed through to corporate lending

Supply, costs and prices

  • CPI fell to 2.5% in August (and yesterday's figures showed it fell again, to 2.2% in September)
  • Higher oil and energy prices will put some upward pressure on inflation
  • Employment had continued to grow strongly, but productivity continued to deteriorate
  • Factors to explain weakness in productivity could be: problems with access to credit reducing access to capital equipment; uncertain demand meaning firms are hiring new employees rather than investing a large initial layout in capital; low rates of company failure

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