More quantitative easing from the Bank of England looks pretty much assured for next month in the wake of the latest MPC minutes, which showed the governor voting with the minority (four in total) to extend the current asset purchase facility at the June meeting. Although it’s not unprecedented for King to vote with the minority for a change in policy, this is the first time it has happened with respect to expanding QE (although in August 2009 he did vote for expanding by more than the majority view of stg 50bln). The governor did provide a hint of his change in stance during his speech at the Mansion House last week, so while the change in his vote should not come as a total surprise, it is significant given the rarity of King dissenting in favour of a move and especially an easing one. Indeed, this appears to be only the second time it has happened, with no dissensions for lower rates from King since the MPC started.
The lack of response by sterling to this latest news from the MPC backs up an observation we were making yesterday, namely that currencies are becoming less influenced by QE decisions, in large part because their economic impact is diminishing. This certainly remains the case in the UK, given the rising borrowing costs seen by both households and businesses over the past year. Sterling very quickly recouped losses seen on the announcement this morning, cable only briefly dipping below the 1.57 level, although this more reflects the extent of long dollar positions out there, with the sterling slippage vs. the euro more sustained. From here, all eyes are on the Fed decision later today, where further easing measures (extending ‘operation twist’) are likely.