Bank of England Governor Mervyn King wanted to pump even more money into the economy ahead of this month’s shock decision to boost money supply by £50 billion.
The Governor was one of three policymakers who were keen to increase the Bank’s so-called Quantitative Easing (QE) programme by £75 billion – to £200 billion, according to minutes of the monthly meeting.
The decision to instead increase QE by £50 billion was passed after six members voted in favour, but Mr King and the dissenters argued that there was less harm in boosting money supply by too much than there would be by too little.
The minutes also revealed the Bank’s Monetary Policy Committee was unanimous in voting to keep interest rates at their historic low of 0.5 per cent.
Mr King and the two MPC colleagues who preferred a £75 billion expansion – David Miles and Tim Besley – said they believed there were fewer risks in such a move.
According to the minutes, they warned that insufficient action would cause inflation to remain below target for a sustained period of time and might harm public confidence in the recovery, causing it to falter.
“Confidence in the efficacy of monetary policy might also be damaged, limiting policymakers’ ability to stimulate the economy in future,” the minutes went on.
But the majority of committee members were concerned that too big an increase could have economic implications that were uncertain and difficult to rectify.
Recent encouraging indicators for the UK economy added to caution over the need for greater stimulus.
Economists said the minutes came as a surprise, with the market already shocked by the decision earlier this month to increase QE by £50 billion, having expected only a £25 billion boost at most.
They said the revelation suggested the Bank may yet pump more money into the economy.
Vicky Redwood of Capital Economics said: “The minutes of August’s MPC meeting give a strong signal that QE might yet be extended even further.
“Even those who voted for just £50 billion in part just wanted to wait for more evidence of what impact QE was having.”
The pound slumped back on the minutes and implications for a potential further money boost from the Bank.
Sterling fell 0.7 per cent against the euro and by more than 1.2 per cent against the dollar.
The minutes also revealed caution among MPC members over the recent improvements in the economy.
The committee said that while financial market sentiment and indicators of business and consumer confidence had improved, “they shed little light on the key question of how durable the recovery would prove to be in the medium term”.
Having had access to the Bank’s quarterly forecast in advance for the meeting, they concluded that the risk of another sustained contraction had eased, but said it was likely the UK would endure a slow recovery.
Data that revealed yesterday that the UK’s official measure of inflation unexpectedly held steady at 1.8 per cent in July threw some doubt on the Bank’s forecasts.
Ms Redwood said it was likely that stubborn inflation would “turn out to have been a blip”, adding “there is a good chance that the MPC will extend the QE programme again in November”.