MPC Stance Shifting in Favour of more QE
Minutes of the June MPC meeting revealed that the decision to maintain the stock of asset purchases at £325bn was carried by the narrowest possible majority of five to four. Adam Posen’s reversal back in favour of £50bn of additional QE (joining the unchanged stance from David Miles) had been well flagged in advance, whilst following his Mansion House speech last week it always seemed likely that Governor Sir Mervyn King had been convinced by the need for further action. The real surprise was that Paul Fisher—hitherto perceived to have had hawkish tendencies—should have voted for an additional £25bn of asset purchases. The dramatically changed voting pattern—just one month on from the May Inflation Report—means that the hurdle for more QE over the coming months has been greatly reduced. Only one more member needs to change their view in July to prompt another round of policy action. And given that most of the economic data published over the past month or so has surprised on the downside, it is difficult to see why such action shouldn’t be forthcoming.
Conditions in financial markets remain highly volatile. However, on all standard valuation measures equity markets are profoundly cheap. They could easily get cheaper still in the short term, but if our view that central bank policies will remain firmly “growth centric” for at least the next couple of years proves to be anywhere near correct, the main benchmark equity market indices should be substantially higher in 12-to-18 months’ time. Only a brave man would be out of equities at current levels.
20th June 2012
John Clarke - CIO
GHC Capital Markets Limited
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