Bank of England Deputy Governor Charles Bean said policy makers will “take stock” of their current round of stimulus when it ends in February and are ready to increase their bond-purchase target if necessary.
“If we feel it’s necessary to inject further stimulus into the economy to keep nominal spending growing and prevent inflation falling too low two or three years out, then we will certainly be willing to do more,” Bean said in an interview on BBC Radio 4 today. “But we don’t really need to prejudge that now. We can wait and see what has happened by February.”
Bean also said the euro-area debt crisis is “worrying” and there is a risk that a country may want to leave the currency region. Still, he said the central bank has a “number of things” it could do in response, such as providing temporary loans to banks and increasing bond purchases further.
“It’s clearly a worrying situation,” Bean said. “It’s clearly something that countries eventually may feel that they’re better off outside the euro zone than in it,” he said, adding that this would be a “costly direction.”
“If there are serious storms coming from across the channel that we have to cope with, there are a number things we can do,” he said.
The Bank of England cut its economic forecasts last month, and Bean said today that growth in the early part of 2012 is likely to be “pretty flat.” In an interview with the Evening Standard published today, his colleague Ben Broadbent said there’s a “material chance of a technical recession” in the U.K., which would be two consecutive quarters of contraction.
“It’s always possible for there to be a contraction in activity,” Bean said. “The broad picture is likely to be output pretty flat, but as we go through next year, inflation should be coming down quite sharply and that will help to boost the rate of growth of households’ real incomes and help to support consumer spending. The second half of next year, we should see some return to growth.”
The central bank increased its bond-buying program by 75 billion pounds ($118 billion) to 275 billion pounds in October and kept the target unchanged on Dec. 8. Minutes of the December meeting to be published tomorrow will show how the nine-member Monetary Policy Committee voted.
“The current program of 75 billion of purchases will take us through to late January, early February,” Bean said. “At the February meeting, we can take stock.”
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