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Pound slumps as Mervyn King backs QE increase

by Chris Marshall on Feb 20, 2013 at 11:17

Pound slumps as Mervyn King backs QE increase

Sterling slumped even further against the euro and US dollar after the Bank of England revealed that governor Mervyn King was among a trio of monetary policy committee members who want further quantitative easing.

King voted alongside Paul Fisher and David Miles to raise the stimulus scheme by another £25 billion to a total of £400 billion, but the three were outvoted by the six other members of the committee at their meeting two weeks ago.

The support for more QE marks a shift from previous votes where only Miles had voted for more stimulus. King, who is to be replaced by Mark Carney in the summer, said a week ago that there was ‘cause for optimism’ for a UK economic recovery, but also indicated that it might be acceptable for the Bank to temporarily miss its inflation target.

The pound, which had already been trending lower, shot down 0.8% against the euro to €1.1431. sterling lost 0.5% against the US dollar to $1.5350. The decline continues a trend of pound weakness this year as markets target the UK’s weak economy against expectations that the eurozone and US economies are improving.

The minutes from the MPC’s meeting make a case for further QE: ‘Further asset purchases, in part by acting to reduce longer-term interest rates and underpinning the value of a broad range of assets, could help the process of rebalancing the economy, and avoid potentially lasting destruction of productive capacity and increases in unemployment’.

The MPC voted unanimously to keep the base interest rate on hold at 0.5%

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