BOE’s Weale Says the Bank Has a ‘Lot of Scope’ to Increase Asset Purchases
Bank of England policy maker Martin Weale said the central bank has “a lot of scope” to increase asset purchases if it’s deemed necessary to boost economic growth.
“There is quite a lot of scope for further quantitative easing,” Weale said in an interview on Sky News yesterday.
The U.K. central bank last week raised the ceiling for its asset purchases, or so-called quantitative easing, to 275 billion pounds ($428 billion) from 200 billion pounds. Governor Mervyn King said the move, the first loosening of U.K. monetary policy since the depths of the recession in 2009, was a response to what may be the worst financial crisis ever.
Asked if he agreed with King’s description, Weale said there are similarities to the 1930s and the economic situation is “very difficult.” He cautioned that central banks can’t resolve all the world’s economic woes.
Still, “the case for support has grown in the autumn as the financial situation has appeared to deteriorate,” Weale said. “What we have seen since the summer is a sharp deterioration in Britain’s economic prospects.”
King’s statement doesn’t draw a distinction between economic and financial crises, making it “potentially very misleading,” former Bank of England policy maker Andrew Sentance wrote on his blog Oct. 9, adding it risks “creating a much more apocalyptic and negative view of the economy than is justified.”
“Maintaining the confidence of the business community through these difficult times is a key issue for economic policy makers,” Sentance wrote. “In terms of this challenge, the Governor’s apocalyptic and gloomy statements are surely counterproductive.”
Weale said Bank of England studies suggested the asset buying does support the economy and he has not seen a convincing argument that it only serves to bolster inflation rather than growth.
As recently as July, Weale sought higher interest rates to quell inflation, which was 4.5 percent in August, more than double the Bank of England’s target.
While inflation is still likely to pass 5 percent, he said yesterday the prospect of price pressures in two to three years is now “less worrying than I had thought” and “that justifies a slacker policy.”
Britain’s economy grew less than initially estimated in the second quarter, with gross domestic product rising 0.1 percent rather than the initial estimate of 0.2 percent, data last week showed.
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