Former Bank of England Deputy Governor John Gieve said he would favor waiting instead of restarting asset purchases as soon as November because the U.K.’s economic recovery is showing signs of persisting.
“I’d be voting to give it a bit more time,” he said in an interview on “The Pulse” with Andrea Catherwood on Bloomberg Television in London today. “It’s not clear the economy is faltering and it’s likely the recovery will continue.”
The nine-member Monetary Policy Committee split three ways this month on the need to inject more stimulus in the economy in a second round of so-called quantitative easing. The biggest public-spending cuts since World War II have left the government reliant on central bank policy to stoke economic growth in case the squeeze jeopardizes the recovery.
“If the economy is faltering or falters, then really QE2 is the only tool we’ve got,” Gieve said. “With interest rates where they are and the fiscal policy set and regulatory policy tightening, really there’s no other game in town.”
Chancellor of the Exchequer George Osborne this week gave details on spending cuts to shrink the budget deficit to 2 percent of economic output by 2015 from more than 10 percent currently. The plan may lead to the loss of half a million public-sector jobs.
The bank held its bond-purchase plan at 200 billion pounds ($314 billion) this month and the benchmark interest rate at a record low of 0.5 percent. Though gross domestic product expanded 1.2 percent in the second quarter, the fastest in nine years, a slump in house prices and a jump in unemployment benefit claims suggest the pace of recovery is moderating.
Gieve, who was deputy governor for financial stability at the central bank from February 2006 to February 2009, said the outlook for the economy had weakened, and a second round of bond purchases may have less impact than the first tranche.
“It’s not clear that the economy is faltering and it seems quite likely to me that the recovery will continue but there’s no doubt that there’s more worry about that than there was a few months ago,” he said. “A second round may have some impact but not as much as the first round, it may have a diminishing impact over time.”
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