Oh to have been a fly on the wall at the most recent meeting of the Bank of England Monetary Policy Committee. This time around there was a three-way split. Meanwhile, new data out this morning on the growth of the UK money supply must surely lend support to the MPC faction wanting to see the money printing press going back into action.

Actually, news that members of the MPC voted three ways at the latest meeting was no real surprise. The more interesting aspect lies in what the members sitting in the middle are thinking, and the latest minutes suggested they are leaning towards more quantitative easing.

Andrew Sentance, who has taken up the role of the MPC hawk, has been voting for rate rises now for several months. It would have been a real surprise if he had changed his tune this time around, so there was no surprise that he voted for a hike once again. Mr Sentance has been expressing fears that there is less spare capacity within the UK economy than was previously thought. His big fear is that the recession may actually have killed off some capacity permanently, and that a future rise in demand will be translated almost immediately into higher prices.

By contrast, Adam Posen has written extensively on how he believes the time is right for more quantitative easing. In the meeting held earlier this month, he voted for a further £50bn.

But perhaps of more significance is what the minutes said of the members who sat in the middle, voting for no change. Some felt that “the likelihood that further monetary stimulus would become necessary in order to meet the inflation target in the medium term had increased in recent months.”

Now, that is about as big a hint as you are going to get.

Of course, with inflation remaining stubbornly at 3.1 per cent, a position it has now occupied for three consecutive months, there is no shortage of those who believe that there has been some kind of secret pact with the government, and that actually the Bank of England no longer cares about inflation. Conspiracy theories aside, there is no shortage of people who feel the current levels of interest rates are a recipe for inflation down the line and that more QE would be an unmitigated disaster.

But on the other hand, average earnings growth including bonuses increased in the year to August 2010, by 1.7 per cent. Hardly the stuff that wage push inflation is made off, and which Andrew Sentance seems to fear. More to the point, in the year to August, pay growth (including bonuses) in the private sector stood at 1.2 per cent, compared with 2.9 per cent in the public sector. In other words, the main impetus for wage inflation this year has come from the public sector.

Now, lean in a little closer and we will let you into a secret. Keep it quiet now, won’t you. Here it is: the public sector may see wage inflation slow quite significantly for the next few years – there, said it. In other words, the one thing that has kept wage inflation up at all, is set to go into reverse.

And then there’s the money supply. The initial estimate for September’s money supply growth, and in particular broad money or M4, was out this morning. The Bank of England said: “M4 decreased by £5.5 billion (0.3 per cent ), compared with an average monthly increase for the previous six months of £0.8 billion. The twelve-month growth rate fell to 0.9 per cent from 1.9 per cent in August.” Now, a growth rate of M4 of just 0.9 per cent is incredibly low. “M4 lending,” says the bank, “decreased by £0.7 billion (0.0 per cent) in September. The twelve-month growth rate fell to 0.0 per cent from 0.7 per cent in August.” And finally: “M4 lending (excluding the effects of securitisations, etc.) decreased by £0.8 billion (0.0 per cent) in September. The twelve-month growth rate fell to -1.0 per cent from -0.4 per cent in August.”

The truth is, that despite all this QE, the money supply is barely growing at all, and the measure of M4 lending that the bank prefers is contracting.

The question over QE is not whether it is shoring up inflationary pressure, but whether it is doing anything much at all. QE will only be effective when the Bank of England starts buying bonds in banks that are more proactive in lending to business, ideally in the form venture capital, such as the new £1.5bn fund the banks have been threatening to form. If QE could be used to turn this £1.5bn fund into a £15bn fund, then it really would start making a difference.

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