The Bank of England may need to consider diversifying its asset purchase program as an intensifying fiscal squeeze next year forces it to expand stimulus, a former central bank official said.
“2013 is going to be a pretty tough year,” Rob Wood, the newly appointed chief U.K. economist at Berenberg Bank who previously led analysis of British data for the central bank, told reporters at a briefing in London today. “The Bank of England will do more QE to help things.”
Bank of England Governor Mervyn King yesterday said the economy faces a slow and gradual recovery, and suggested asset purchases were the bank’s primary tool to help spur growth. He has rejected calls to diversify the type of assets purchased as part of so-called quantitative easing. By the end of this month, the central bank will have bought 375 billion pounds ($601 billion) of gilts.
“The drawback of QE as it’s currently implemented is that it’s hard for it to reach consumers,” Wood said. “If you’ve tried something with 375 billion quid and it’s not quite doing the trick, then maybe it’s better to try it with a few other things as well.”
Wood said that an easing of the euro area crisis will help the U.K. economy recover after another “year or two.” While the government shouldn’t implement any additional fiscal cuts in the near term, more austerity will be needed in future to eliminate Britain’s structural deficit, he said.
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