There seem to be two main reasons why the MPC’s doves are trying to push the exchange rate lower by talking up the prospect of QE2.

First, the doves believe that the inflation overshoot is more than explained by a combination of the VAT hike and large increases in energy and import prices – domestically-generated inflationary pressures, in other words, are negligible. This view is reflected in a chart in the February and May Inflation Reports showing a range of estimates for the level of CPI inflation excluding the contribution of VAT and energy / import prices. This range was -0.5% to 1.3% in February and fell to -0.9% to 1.0% in the May Report.

The implication of this view is that a further surge in import prices that would follow from additional sterling weakness, far from being a development that the MPC should seek to avoid, is actually necessary to prevent inflation from falling below the target.

Secondly, the doves expect fiscal tightening and private-sector deleveraging to weigh heavily on domestic demand, implying that achievement of respectable GDP growth depends on a large improvement in net exports. To quote from Paul Fisher's interview with the Daily Mail at the start of June, which kicked off sterling's slide, “zero consumption puts a very heavy burden on the export side to deliver”. The doves have been disappointed by the lack of trade response to the 25% fall in sterling’s effective rate since mid 2007, notwithstanding better first-quarter numbers, and appear to believe that further depreciation is required to allow UK firms to gain market share.

These two arguments are, at least in the view of the author, weak. Any attempt to calculate what inflation would be “without the bad stuff” is highly speculative. The deflator for GDP at basic prices is a direct measure of domestically-generated inflation, excluding tax effects – it rose by 2.0% in the year to the first quarter, contradicting the doves’ view that the target would have been undershot but for various “shocks”. If energy and import costs had remained stable, moreover, consumers would have been able to spend more on other goods and services, pushing up their prices. Inflation would probably still be above target, driven by a stronger domestic component.

The claim that net exports must bear the burden of growth is similarly suspect. Domestic demand actually rose by a solid 4.2% in cash terms in the year to the first quarter. This, however, translated into a real increase of only 0.5% because of high inflation, for which the Bank bears partial responsibility. It is, in any case, doubtful that the tradeables sector – and particularly manufacturing – has sufficient slack to become the "engine" of growth, as the doves desire. In the April CBI industrial trends survey, the percentage of firms citing a shortage of plant capacity as a constraint on output was the highest since 1988. Under these circumstances, a further fall in sterling is likely to be reflected in higher prices rather than an increase in export or production volumes.