The tone of the MPC minutes suggest that the BOE may have entered into the semantics of transition. The UK might not be in recovery mode yet, but the intonation seems to suggest the economy is over the worst and out of casualty. The key is how much more QE medicine the economy needs to speed up the healing process to get the economy back on the road to fuller recovery. That debate probably awaits the arrival of incoming BOE governor Carney to see what he has in his monetary medicine bag. The argument posted by some members about the risk that more QE might pose to increased inflation risks is nothing more than a foil. In the current climate, the BOE’s inflation mandate is set aside while the risks of another dip into recession lurk in the forefront. King’s support for a further QE extension simply keeps the easing seat warm for Carney when he comes on board. For the moment, until Carney picks up the monetary reins, BOE policy should be expected to stay unchanged. But the markets should expect the policy sparks to fly as he starts to inject some new thinking into the equation for extra monetary stimulus ahead. Sterling might be off the hook for the moment, but downward pressure on the currency should be expected to come into full force once Carney’s new regime comes into effect. Carney will go overboard for faster recovery and sterling should take the strain over the future.
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