BOE: Weak Demand to Persist

By JASON DOUGLAS And ALEX BRITTAIN
LONDON
The risk of undershooting the Bank of England's 2% inflation target over the next couple of years has increased and members of the bank's Monetary Policy Committee are considering the case for extra support for the economy, the minutes of the MPC's June policy meeting said Wednesday.
In a dovish set of minutes likely to strengthen investors' belief that the BOE won't raise borrowing costs until next year, the MPC judged in June that weak demand is likely to persist for longer than previously thought and policy makers fretted that the global economy may yet be rocked by the fallout of a Greek default.
The minutes showed the idea of using further asset purchases to boost the economy—once a policy option supported by only one member of committee—appears to be gaining currency among BOE policy makers.
For some members, "it was possible that further asset purchases might become warranted if the downside risks to medium-term inflation materialized," the minutes said, citing the danger that weak demand erodes domestic inflationary pressures.
Paul Fisher, the bank's executive director for markets, said Tuesday he would consider voting for further stimulus were the risk of deflation to strengthen.
The minutes showed seven of the bank's nine policy makers voted to keep the bank's benchmark interest rate on hold at 0.5%, compared with six in May.
New MPC member Ben Broadbent voted with the majority, the minutes showed. Mr. Broadbent replaced arch-hawk Andrew Sentance, leaving just Martin Weale and Spencer Dale voting for a quarter-point increase in the key rate.
Adam Posen repeated his long-held call for further monetary stimulus to boost the economy.
Despite their worries about the risk of undershooting their inflation target over the next couple of years, the minutes revealed the MPC believe it is likely that inflation will rise to more than 5% in the near-term, but should start to subside as temporary factors boosting prices dissipate.
Inflation hit 4.5% in the 12 months to May, according to official statistics, more than twice the BOE's 2% target.