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BoE QE vote sees sterling slump and FTSE peak

Mervyn King Speaking 480

Details of the recent vote against further quantitative easing from the Bank of England has sparked a multi-month slump in the pound against the euro and the dollar, while the FTSE peaks above 6409.

Minutes from the last Monetary Policy Committee meeting held in February saw the BoE governor Sir Mervyn King call for the purchase of an additional £25bn worth of assets. Despite King being outvoted by nine to three, there was an immediate market reaction against the pound as speculation mounted that fresh stimulus could be seen in the months ahead.

Following the release of the MPC minutes, the pound fell to an eight month low against the dollar and to a 15-month low against the euro. The news also triggered the FTSE 100 index to peak above 6409.

While Sir Mervyn King looked to increase the quantitative easing to £400bn, MPC members were concerned about how effective buying more bonds or other assets would be in combating inflation, according to minutes from the MPC meeting.

The minutes say: “The degree of slack in the economy, and the likely positive response of supply capacity to increased demand, meant that higher output growth would not necessarily lead to any material additional inflationary pressure.”

The latest slump in the pound follows a longer running problem with sterling in recent weeks, according to a report by the FT. Increasing concern over a downgrade of UK debt and uncertain economic conditions is said to have caused investors to “dump sterling” in recent weeks.

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