Bank of England policy maker Martin Weale said that the central bank’s forecast for inflation to probably undershoot the 2 percent goal suggests “a strong case” for policy makers to expand stimulus next year.
The Monetary Policy Committee’s “recent forecast suggests that, as a result of weakness over the next three quarters, inflation is more likely than not to undershoot its target at a two to three-year horizon,” Weale said in London today. “This, in turn, suggests a strong case for further support.”
Weale said the U.K. is experiencing the slowest economic recovery since World War I. His comments come the week after the Bank of England slashed forecasts for growth and inflation amid an intensifying crisis in the euro area. Some policy makers this month said more stimulus may be needed in future after they expanded asset purchases in October to 275 billion ($426 billion), expecting to complete them by February.
“Unless the economic situation improves, there is likely to be a strong case for extending the asset purchase program after the current one comes to an end,” Weale said. “At the same time I can understand the case for waiting until the marked reduction in inflation which we are predicting is clearly under way.”
Inflation was at 5 percent in October, close to the peak of 5.2 percent the previous month and more than double the bank’s target. The central bank predicts it will slow “sharply” to reach 2 percent by the end of next year.
Weale said that the bank’s forecast suggests it will take 5 1/2 years for U.K. output to recover its 2008 peak. While productivity has picked up it “has not regained its previous path,” he said, adding that “household consumption has been unusually weak.”
“The U.K.’s recovery is unusually slow,” Weale said. “In terms of duration if not depth, our forecast suggest that this will be the worst of the cycles for which we can produce more than annual indicators.”
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