The “MPC-ometer” model for predicting monetary policy decisions suggested that further easing would be announced in November. The Committee, in the event, stood pat. Was the model wrong, or the MPC?

The question is legitimate because the forecast issued in the November Inflation Report seemed to argue strongly for action. The mean projection for CPI inflation in two years’ time assuming unchanged policy was well below the 2% target at 1.29% – the lowest since February 2009.

The judgement here is that such an undershoot is as unlikely now as it was back then. If the MPC believes its forecast, however, why hasn’t it taken preventative action?

The November minutes suggest that members held back for two reasons – the scale of the current inflation overshoot and a belief that it would be technically difficult to increase the rate of gilt purchases.

The first reason is odd given the MPC’s proclivity until now to dismiss high current inflation as the result of bad luck. An inflation overshoot, moreover, did not prevent aggressive easing in early 2009. (The headline CPI rate was lower, though, at 3.2% in February 2009 versus 5.0% in October 2011.)

The second reason – that QE cannot be accelerated – is even flimsier. Monthly gilt purchases could be boosted by about £15 billion by the Bank coming to an agreement with the Debt Management Office to absorb new issuance – DMO gross gilt sales have averaged £14.9 billion a month so far in 2011-12. The MPC, moreover, could extend the buying programme to non-government assets, following the example of the Federal Reserve (agency mortgage-backed securities), ECB (covered bank bonds) and Bank of Japan (commercial paper, corporate bonds and exchange-traded equity index funds).

The “MPC-ometer” may have become temporarily less reliable given the Committee’s inconsistent behaviour. Its prediction for Thursday’s meeting is either a 25 basis point cut in Bank rate to 0.25% or a £50 billion expansion of QE.