Bank of England signals QE set to restart by November

THE Bank of England today gave its strongest hint yet that a return to the printing presses is on the cards to ward off a double-dip recession.

The eurozone debt crisis and concerns over a flagging US economy had "significantly strengthened" the case for more quantitative easing, minutes of the monetary policy committee's September meeting revealed.

Arch-dove Adam Posen so far remains the only MPC member voting for more money printing, but the committee is increasingly alarmed over a "synchronised slowing in global growth" and a "marked deterioration" in British business prospects.

The Bank's comments added to the sense of deepening economic crisis in the wake of the International Monetary Fund slashing growth forecasts for the UK and a host of other countries.

In a complete shift of tone, the MPC also weighed options such as cutting interest rates below their current 0.5% record low, and giving explicit guidance on the future path of interest rates beyond their quarterly inflation forecasts. Bank chiefs have previously opposed this to allow flexibility on setting policy.

Such guidance would echo the US Federal Reserve's recent statement that rates would stay close to zero for two years. The Bank, under Governor Mervyn King, also considered its own version of the Fed's "Operation Twist" - changing the maturity of the gilts it holds in a bid to bring down long-term interest rates.

Sterling - already at nine-month lows against the dollar - immediately sank nearly a cent to $1.5613 as experts said more quantitative easing looked a nailed-on certainty by November barring an unlikely revival in economic fortunes. A move as soon as next month is possible, although the MPC may wait until official growth estimates for the July-September quarter - likely to be weak - are published.

Most members thought the decision was "finely balanced" although "some" - code for an MPC minority - said continuing turmoil would justify more QE at a subsequent meeting. The momentum behind more support for the economy comes despite inflation standing at more than double the Bank's 2% target.

Scott Corfe, senior economist at the Centre for Economics and Business Research, said: "Although drastic changes in policy usually take place in the same month as a new inflation report - the next one of which is due in November - the escalating economic crisis could force the MPC into an announcement next month. Posen may find himself with a few more followers in October."