The Bank of England announced Aug. 6 that it was expanding the size of the asset-purchase program by 50 billion pounds ($82 billion) to a new total of 175 billion pounds, catching financial markets off guard amid expectations that it was likely to either put its quantitative-easing program on pause or expand it by no more than 25 billion pounds. But in another surprise, the minutes revealed that the increase of 50 billion pounds was approved in a 6-3 vote, with King and MPC members Tim Besley and David Miles voting against it. They preferred to increase the program by 75 billion pounds, to 200 billion pounds, the minutes showed. "The potential adverse consequences of adding another large monetary stimulus might be less severe than the possible costs of acting too cautiously," they argued, according to the minutes. "Insufficiently stimulatory monetary policy would cause inflation to remain below the target for a sustained period of time, depressing inflation expectations and might harm public confidence in the recovery, causing it to falter." But arguments for a more modest expansion won the day. Advocates for the smaller increase argued that immediate downside economic risks "seemed to have receded" and that the channels through which large-scale asset purchases affected the economy were uncertain. "The substantial injections of liquidity into the economy might result in unwarranted increases in some asset prices that could prove costly to rectify or in inflation expectations moving upwards," they argued, according to the minutes. "Moreover, if the asset purchases proved to be more effective than anticipated, an early withdrawal of some of the monetary stimulus might prompt a sharp rise in market interest rates that was unwarranted by the economic outlook," they argued. Many economists had expected the minutes to reflect a unanimous vote on the size of the increase. The results underlined the perspective that the Bank of England isn't likely to begin raising its key lending rate or back off of its quantitative-easing program anytime soon, analysts said. As expected, the MPC voted 9-0 to leave its key lending rate unchanged at a record low of 0.5%. The quantitative-easing program, implemented in March, centers on efforts to boost the money supply by electronically creating new reserves that are used to purchase government bonds and highly rated assets. The plan's ultimate goal is to boost spending and avert a deflationary spiral. The creation of new money is seen as negative for the British pound, while the aggressive bond-buying stance is viewed as supportive for government bonds, known as gilts. The pound extended losses as gilts rallied on Wednesday, sending the yield on the 10-year gilt down more than 6 basis points to about 3.59%. Yields move in the opposite direction of bond prices. The minutes were "clearly bullish for gilts and bearish for sterling," said Ian Beauchamp, global head of rates strategy at RBC Capital Markets. "The MPC are no longer accelerating the [quantitative easing] process but appear to be in no mood to scale it back until monetary aggregates start to show a positive response," Beauchamp said in emailed comments.

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