After the release today of the Bank of England’s latest Monetary Policy Committee (MPC) minutes, you’ll probably see many scary headlines saying the Bank of England considered even more Quantative Easing (QE, aka printing money) than the £75 billion voted for. £100 billion in fact. Let’s balance that by pointing out that they also considered half that (the minutes cite “a range of asset purchases of between £50 billion and £100 billion”) and, in the end, split the difference.
It’s also notable that for all talk from various commentators and economists, there was absolutely no discussion of reducing base rate further so it would seem (for the time being at least) that we can discount that idea.
This isn’t to say the minutes are cheery – they’re not. What stands out is that, whilst there was a fair amount of uncertainty about how much cash to pump into the economy, there was no doubt that it needed to happen right now. In the end the vote for £75bn more QE was unanimous, and any thought of holding off until November (when the next inflation report comes out) was discarded. It seems we’re in a bit of a pickle.
What will be particularly relevant for mortgage holders are the comments about the eurozone situation. A couple of direct quotes from the minutes:
So a clear concern for the wise owls at the Bank is that the uncertainty within Europe could well push us into Credit Crunch 2 – if it hasn’t already started.
Stresses had been particularly acute in bank funding markets. Short-term funding had become more expensive and difficult to obtain for European banks, including those in the United Kingdom . . . While banks in the United Kingdom had made significant progress in meeting their term debt issuance targets for the year as a whole, there were limits to how long they would be able to withstand elevated funding costs or closure in these markets before lending to the domestic economy would be affected.
. . . the Bank’s Agents [in the August credit conditions report] had reported that their contacts had seen little evidence so far of a tightening in conditions as a result of the recent financial market turbulence. But the longer that the elevated cost of wholesale bank funding persisted, the more likely it would be that lenders would pass these costs through to households and businesses by raising the cost of credit or restricting its availability.
While the worst risks had not crystallised, the threat of them doing so had resulted in severe strains in bank funding markets and financial markets more generally. These tensions in the world economy appeared to have already affected consumer and business confidence and could result in a further tightening of credit conditions . . .
From a consumer perspective, we’ve already seen a number of lenders increasing mortgage rates, with Woolwich and BM Solutions announcing more price hikes just this morning. It’s hard to say how much of this is due eurozone worries and how much is to do with things like servicing capacity, lending and profit targets and so on - but it looks like the start of a trend and, as the MPC points out, the longer the eurostrife persists, the harder it will be for lenders to keep mortgage rates down. Possibly not a time to dither then. . .
The full minutes are available at http://www.bankofengland.co.uk/publications/minutes/mpc/pdf/2011/index.htm