The MPC’s easing package exceeded expectations but falls short of representing a “sledgehammer”.

The MPC supplemented a quarter-point Bank rate cut with purchase programmes of £60 billion of gilts over six months and £10 billion of corporate bonds over 18 months. The implied monthly rate of buying of £10.6 billion, however, compares with £25 billion when QE was introduced in March 2009. The nominal size of the economy has grown by a quarter since 2009, so monthly buying as a percentage of GDP will be only one-third of the level in 2009.

The novelty in the package was the introduction of a Term Funding Scheme, which replaces the Funding for Lending Scheme and will allow banks to access medium-term funding at Bank rate as long as they maintain or expand their net lending. The purpose of the scheme, however, is to ensure that the Bank rate cut feeds through to lending rates by offsetting the negative impact on banks’ margins; it does not represent an additional stimulus measure.

The package also contained forward guidance that the MPC will cut rates to the lower bound, judged to be ”close to, but a little above, zero” if the economy evolves in line with the Inflation Report forecast, which envisages “little growth” in the second half of 2016. Governor Carney, however, stated that he is not in favour of a move to negative rates, and there was no discussion in the minutes of this possibility.

The judgement here is that there is insufficient evidence, in particular about post-referendum money and credit trends, to warrant additional easing at this stage. The MPC is playing fast and loose with the inflation target, launching stimulus despite forecasting that the annual CPI rise will be above the 2% target in 2018-19. If demand holds up better than expected, or the Brexit supply shock proves larger, a significant inflation overshoot may be in prospect.