MPC split over QE

The Bank of England's Monetary Policy Committee was split over quantitative easing (QE) this month, minutes of its June meeting have revealed.

Having discussed the economy and inflation prospects, all nine members agreed to keep the base rate at 0.5 per cent, but the level of QE was only maintained at £325 billion on a 5-4 vote.

Governor of the Bank Sir Mervyn King was joined by David Miles and Adam Posen in advocating another £50 billion of asset purchases, while Paul Fisher wanted to see another £25 billion.

This split contrasted with the unanimity over the base rate, following recent suggestions by the International Monetary Fund that the UK should consider cutting this to zero.

In response, the minutes revealed that the MPC regarded this as a counter-productive move due to the fact many bank have linked products such as mortgages to the base rate, stating: "A reduction of Bank rate below 0.5 per cent might squeeze some lenders' interest margins to such an extent that they became even less able to extend new credit."

With no cut in rates, those with mortgage debt problems who might face repossession if they cannot overcome these may wish to seek help with their situation instead of waiting for a further cut.

For anyone struggling to pay a tracker mortgage despite payments being kept down by the record low base rate, this may be a clear sign that extra help is needed, although there is no sign at present of any rise in the base rate while the economy struggles and inflation is falling.

The issue of mortgage costs also affects new buyers, who may find other debts make it harder to afford home loans or deposits for them.

A recent poll by the Council of Mortgage Lenders (CML) revealed that most young people still want to become homeowners, but are faced with higher barriers to this than in the past.

CML chief economist Bob Pannell said: "Achieving the home-ownership dream has become more difficult for people and is likely to remain so, especially for the young."

And for those who do get a mortgage, struggling and losing a home is never good news, despite some ill-informed suggestions to the contrary.

By Joe White