The Bank of England held its monetary policy unchanged on Thursday, but division emerged at the top over whether to keep pumping money into the bond market.
The Bank of England's Monetary Policy Committee (MPC) kept the UK's interest rate unchanged at 0.1% and maintained its programme of bond buying at current levels. However, voting records show that one member of the eight-person committee voted to end the programme early.
The Bank announced emergency measures to pump £875bn ($1.2tn) into the UK government bond market last year as the COVID-19 pandemic hit. The package took the central bank's total quantitative easing programme to £895bn.
The stimulus helped the UK economy weather the worst of the downturn but some experts now think continued stimulus risks overheating the economy. Inflation has already blown past the Bank's 2% target and GDP is expanding rapidly. The Bank still has £50bn to spend before the end of the year.
Michael Saunders, an external member of the MPC, voted to cap the programme at £850bn amid fears about inflation.
The MPC statement noted division on the issue, with some members arguing that inflation goals have been "met fully" and now is the time to tighten policy. The prevailing view is that inflation is still not on track to sustainably hit 2% and ultra-loose monetary policy is required.
Governor Andrew Bailey wouldn't be drawn on specific numbers around how many people disagreed on the issue of inflation goals.
"All members … came together again in terms of their view on the appropriate stance of monetary policy and what it should be," he told journalists. "This is not a difference of voting, it's not a difference of fundamental views on the stance of monetary policy, it's a difference of interpretation of the current situation."
The MPC still believes the current bout of inflation will be temporary but almost doubled its forecast for where inflation will peak. Policy setters now expect inflation to peak at 4%, compared with a 2.5% projection made in May.
"The economy is projected to experience a more pronounced period of above-target inflation in the near term than expected in the May report," the committee said.
Inflation is expected to ease as the global economy reopens and the furlough scheme winds down. Reopening should lower supply chain costs, while the end of furlough should keep a cap on wage rises as more people return to the labour market.
Still, the MPC said tighter monetary policy would likely be required within the next two years to keep a lid on inflation if the UK recovers in line with forecasts.
"Some modest tightening of monetary policy over the forecast period is likely to be necessary to be consistent with meeting the inflation target sustainably in the medium term," the MPC said.
The Bank said economic growth since its last update in May had been "slightly stronger than expected" and estimated that the UK economy expanded by 5% in the second quarter.
Despite strong momentum, the UK economy remains 4% below pre-pandemic levels. The Bank expects the UK to return to its pre-pandemic size by the final quarter of this year.
Thursday's update did not include wording around pandemic uncertainty that has featured in recent updates. Instead, the committee said: "Risk management considerations continue to have some force."
The update yielded no surprises for the City, with analysts forecasting no change in policy but the emergence of dissenting votes on quantitative easing.
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