Cable Tumbles As BOE Monetary Policy Committee Raises Possibility Of QE2

Tyler Durden's picture

Remember the whole UK stagflation scare, where the misery index recently hit a 20 year high, as both inflation and unemployment surged to two decade highs, keeping the GBP strong on expectations of rate hikes by the BOE? Well, the stagflation is still there, but according to just released BOE minutes, there has been a sudden 180 within the Monetary Policy Committee, which has now flipflopped, and just as we predicted, has fallen back to the traditional central bank fall back plan, namely "buy more bonds" as despite surging inflation, the country's central planners once again view deflation as a greater threat. As Bloomberg reports: "Bank of England minutes showed some policy makers see a potential need for further bond purchases as the economic recovery struggles and “downside” risks to growth and inflation mount. For the majority of the nine-member Monetary Policy Committee, “the fiscal challenges in the euro-area periphery highlighted the potential for further adverse shocks to demand,” according to minutes of the June 8-9 meeting published today in London. “For some of these members, it was possible that further asset purchases might become warranted if the downside risks to medium-term inflation materialized." So the spin now is not to worry about that surging inflation: it's "transitory"... just as the imminent UK QE2 will be: "While U.K. inflation was 4.5 percent in May, more than twice the central bank’s target, Governor Mervyn King said last week that the current price surge is temporary as he defended keeping the key rate on hold to aid the economic recovery during the government’s budget cuts. Paul Fisher said yesterday that adding to the bank’s bond program remains “very much on the table” as a policy tool." Next up: a major quantitative easing episode out of Japan as the two "peripheral" developed economies attempt to fill the void left by the Fed and fail miserably, at which point Bernanke will have no choice but to get involved as well.

Below is Goldman's take on upcoming QE2 out of England:

BOTTOM LINE: Very dovish. No MPC members changed their vote: Dale and Weale voted for +25bps, Posen for additional QE, while Broadbent voted for unchanged rates in his first meeting. But, in the key line of the minutes, "some" of the six swing voters at the centre of the committee now believe that "that further asset purchases might become warranted if the downside risks [from weak growth] to medium-term inflation materialised."

1. The committee as a whole "judged that the downside risks to the prospects for medium-term inflation had increased over the month". The shift in the evaluation of risks appears to have been driven more by concerns over external rather than UK-specific developments. In particular, the weakening in global growth indicators and the possibility that Euro-zone "sovereign debt and banking problems could intensify, perhaps significantly, to the detriment of economic activity and the financial system."

2. There is no presumption that the downside risks will materialise. The MPC raises the possibility that the recent softening in global growth indicators has "primarily been caused by the supply-chain disruption resulting from the Japanese earthquake and tsunami, and the elevated level of oil prices" and will prove temporary.

3. While there is no presumption of QE2, it is clear that the views of majority have hardened against the possibility of hiking in the short-term for "nasty" reasons. Inflation is still expected to rise above 5% in the short term but the committee emphasises that its focus is to "set monetary policy so as to balance the risks of inflation being either above or below the 2% target in the medium term". In this respect, the committee notes that "the latest wage and settlement data had remained subdued".

4. Looking forward, our own view is that the slowdown in global growth indicators will prove temporary and that QE2 will not be forthcoming. But today's minutes clearly represent an important dovish shift.

5. Also released this morning, the Bank's Agents' summary of business conditions indicated that investment, exports and manufacturing output were robust, but consumer spending and construction output were likely to remain weak.

6. Investment plans were strongest among exporters, and these firms also reported an intention to expand capacity. By contrast, investment plans among domestically-facing forms were softer, and directed towards repair and maintenance rather than productive expansion. Manufacturing exports were boosted by increasing world demand and the past depreciation of sterling, and Bank contacts reported a shift in focus towards fulfilling overseas - rather than domestic - demand.

7. On consumption, the Bank cited evidence of falling sales in big ticket items as an indicator that weak growth in household disposable income would continue to constrain consumer expenditure. On construction, the Agents' score implied that output had grown slightly compared to last year, but a fall in public-sector orders was expected to weigh on near-term growth.

8. Capacity utilisation in manufacturing was reported as "on balance, around normal" though constraints on production were greatest among exporters. In the service sector, capacity was tightening slightly in some sectors, but remained abundant in others. There remained significant spare capacity among consumer-facing businesses, and uncertainty surrounding the future outlook for demand left many firms reluctant to boost productive potential. Over the past year, reported spare capacity within firms (both on the Bank's Agents' and BCC surveys) has narrowed considerably. As today's MPC minutes underlined, contemporaneous indicators of output growth in the UK have eased recently. One such measure - the Composite PMI - tends to lead the Bank's Agents' scores, and suggests that reported growth in total activity may decline in the coming months (Chart 1).

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qussl3's picture

ECB to follow by aug.

deez nutz's picture

printing money is all that is left.  stop it and you stop the world from spinning. 

bernanke starts his machine back up in august to start buying the debt of the U.S. he has no choice.  (coinciding with the debt ceiling raise the 3rd week of July) 

MiningJunkie's picture

The Central Banks with their Cartel agenda are moving into VERY DANGEROUS territory. The next move to all-time highs in the P.M.'s is nigh...

hugovanderbubble's picture

ECB is in default

IMF too

Bank of Japan too

*Close the door before exit...which  door? Burned for fire in the new ice age


P.S. Federal Reserve of course has infinite ammo...of fiat backed

breezer1's picture

the comex paper gold is losing its relevance. 

hugovanderbubble's picture

Uk needs more bailout to save Irish banks and British too( RBS, Barclays)

Barclays kaput in Spain

Quintus's picture

Deflation?  Utter Crap.  More QE is coming because there is no market for UK Government debt now that the UK Banks which have (as ZH pointed out not long ago) bought just about the entire UK Gilt issuance this year no longer need to do so to build up their reserves.

It's the same problem that The Bernank faces.  Without QE, there are no bond buyers.  No matter how he spins things in todays FOMC announcement, the net/net will be that the Fed will continue buying the majority of US debt this year, next year and in perpetuity until the whole system collapses under its own weight.

qussl3's picture

Change the RR and accept only gilts.


Sam Clemons's picture

Nice man.  Plus, all of the financial instrument's models rely on exponential debt ("money") growth to make a profit.  If banks run the show, which it appears they do, there will be no possibility of the boogey man deflation.

A Man without Qualities's picture

There's a genuine fear that the bond vigilantes could turn on the Gilt market.  I don't think Mervyn King is a big fan of using QE in the way Bernanke has ended up doing, i.e. allowing profligate politicians to ignore economic reality, but it makes sense to remind the market that it is an option.  

The first round of QE in the UK did nothing for growth, as those who sold Gilts ended up dumping Sterling (or rather UK plc) assets completely.

However, this is a tell, because the UK did QE before the US and they are pretty coordinated in action, so it shows there is clearly a discussion about more QE in the US.  I still argue they won't move immediately, given inflationary pressure, but they will when the time is right.

pauldia's picture

All debtor nations must devalue. No other choice, at least with the current group of leaders. The question remains, individual devaluations, or one simultaneous currency En masse debtor "switch" and devaluation? Alternative currency on horizon.  Creditor nations are now in drivers seat and meetings have been held. Protocol exists. Legislation being laid, note the Dodd-Frank provisions.  Calender most likely circled. Any guesses when? 

qussl3's picture

Why would the guys with the guns willingly submit to debt peonage?

pauldia's picture

U S Navy cannot force a bankrupt dollar to be worlds reserve. SDR"s etc already moving in to replace dollar as world reserve. Not tomorrow, America has a kabuki dance in November 2012 and some chair reshuffling. But not long after. 

trav7777's picture

got no choice...the sovereign is bankrupt.  The stay of execution brought by the North Sea Forties field is now over

PaperBear's picture

I thought I saw a report that Mr. Bernanke used the word 'stimulus' a few days ago, was this the case ?

alexwest's picture

nice .. idiots spelled out

#recovery struggles and “downside” risks to growth and inflation mount.

i dont know what planet are those asshoels from? since how paying for bread/milk/gas/etc is better for economy..


Sam Clemons's picture

Easy.  It makes the pretty GDP, the most worthless indicator of economic well-being of a citizen, numbers look better by having everyone pay more for everything.

AUD's picture

RAN Squawk said earlier that Gilts have been on a seven week rally.

Bond speculators 1

BoE 0

DogSlime's picture

There really is no end to the stupidity.  Kick the can down the road.  Nevermind that when the whole thing collapses, it will be much worse as a result.

We're screwed.  I have abandoned all hope.

AUD's picture

Chin up old boy, it could be worse. Jerry could be firebombing your house.

Josephine29's picture

I think that it was put well here.

The Monetary Policy Committee Minutes


These latest minutes just released have shown that we are further away from an interest-rate rise as the new member Ben Broadbent voted for unchanged policy. As I mull over the idea of an ex-employee of Goldman Sachs voting for no change to the current – very beneficial for Goldman Sachs- status quo I am reminded of the quote from Turkish in the film Snatch.

Who’d da thunk it?


All of our official bodies seem to have suffered from instituttional capture by the banks...



Franken_Stein's picture


WeAreChange Confronting Zbigniew Brzeszinski:


WeAreChange confronting Larry Silverstein, the owner of World Trade Center, hit on 9/11:


WeAreChange confronting Ben Bernanke:


WeAreChange confronting Karl Rove:


WeAreChange confronting Michael Hayden, head of NSA:


Pictures of the 2010 Bilderberg meeting in Sitges, Spain.



Movies of the Bilderberg Group meeting 2011 in St. Moritz, Switzerland.


ivana's picture

Damn "deflation" again ha ha ha


UK banks seems to be in distressssssssssssss

GlynG's picture

Hi bitchez, is now a good time to buy gold for the first time or should I wait a few weeks incase the price drops due to Greece / QE2 ending? (I'm in the UK and new to financial stuff)

Quintus's picture

Spend some time reading on this Precious Metal focused site ( before you do anything.  There are many points of view regarding the potential price movement of Gold this summer (traditional Summer doldrums vs Crisis-driven spike etc.) so it would be wise to familiarise yourself with the issues and form your own opinion.  It's also a good site to pose questions like yours - you will probably get more responses there.


PaperBear's picture

I see the banksters are selling paper silver again so that when Mr. Bernanke this afternoon says the words we all know he is going to say, the price of paper silver is at the low of the day.

morph's picture

More housing ponzi moves. I'd love to buy a house or apartment, but they are simply not reasonably affordable in the UK.

House prices here have to fall around 20%, or to put it another way, wages need to increase by around 25-30%

dcb's picture

they say the definition of insanity is to try the same thing over and over and expect different results. I think being insane is a requirement of being a central banker. I used to like KING, but now I can see he's just another bernanke

Lord Peter Pipsqueak's picture

It is only a matter of time,and don't forget,the Bank of England did their own version of QE BEFORE the Fed,that's how despertate they are to avoid falling house prices.Because that is what it is all about,preventing prices from falling and getting them to go back up again, so people start taking out new or bigger mortgages.The Uk is a post industrial economy with a minor league manufacturing sector that is a mere shadow of its former self,so banking profits mainly come from mortgage business.The banking and finance sector have like the proverbial cuckoo, expanded to a point that totally destabilisies the entire UK economy,consequently its survival means it is paramount to the Bank of England.Add in the rather unpalatable fact that the banks gambling debts/losses(sorry - banking liabilites) in the UK are around 450% of GDP,and there is only one policy the Bank of England is following - and that is to reflate and print money until those liabilities are wiped off the banks balance sheets,their reserves are back to normal solvency levels,and people once again start to discuss how much their house have gone up in "value" at dinner parties.

A devastating article on the failures of the Bank of England is below,but then again is anyone surprised?the Bank of England's job,like that of the Fed, is to protect the interst of banks not the people.