Former BOE Panelist Julius Puts Chance of U.K. Recession at `10% or Less'

Former Bank of England policy maker Deanne Julius said the chance the U.K. economy will slip into another recession is “10 percent or less.”

“We have all the mechanisms in place that we now need to have in place to sustain the recovery,” she said on Bloomberg Television’s ‘The Pulse’ with Andrea Catherwood in London today. “It would take something quite unexpected to throw us into a second dip.”

The U.K. expanded 0.8 percent in the third quarter, twice the pace forecast by economists, before a government budget squeeze that may temper the recovery. At the same time, September’s 3.1 percent inflation rate exceeded the government’s upper limit for a seventh month in September, and Julius said the central bank’s Monetary Policy Committee should raise the key interest rate by a quarter point to limit price gains.

“The burden of proof around the MPC table is very much on those people who think that there should be more stimulus,” Julius said. “The biggest risk that the BOE faces now is that it loses its credibility on targeting inflation.”

The bank, which aims to keep inflation at 2 percent, will keep interest rates at a record low of 0.5 percent and hold its bond-purchase plan at 200 billion pounds ($320 billion) this week, according to the median forecast in two Bloomberg News surveys of economists. The bank will announce the decision at noon on Nov. 4 in London.

Deflation Threat

Policy makers split three ways at last month’s decision, with Andrew Sentance arguing for an increase in the benchmark interest rate and Adam Posen saying the bond-purchase plan, known as quantitative easing, should be expanded. Seven of the nine-member Monetary Policy Committee voted for no change.

Julius said while she would not vote for an increase in bond purchases in Britain, arguments for the U.S. to expand its asset purchases were stronger because the Federal Reserve is battling a bigger deflation threat. The Fed will probably announce a plan to buy at more long-term securities tomorrow, according to a Bloomberg News survey of 56 economists.

“If I thought that deflation was a significant risk, which in the U.S. I think you can make a case for, then I would have to mitigate that risk by looking at more QE,” she said. In the U.K. “it’s very difficult to argue that deflation is a significant risk.”

“If you were arguing for more QE, as a few people may well be, then you need to feel that the output gap in this country is still quite large,” she said.

To contact the reporters on this story: Jennifer Ryan in London at jryan13@bloomberg.net; Andrea Catherwood in London at acatherwood@bloomberg.net

To contact the editor responsible for this story: John Fraher at jfraher@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.