Former Bank of England policy maker Kate Barker said the case for more economic stimulus through so-called quantitative easing is looking “less certain.”
“There is still more concern about inflation staying high,” she said in an interview on CNBC television in London yesterday. “The outlook for QE looks less certain. As the economy stands today, it’s an open question.”
Barker’s comments come two days after policy makers signaled in minutes of their September meeting that they may opt for more stimulus to kick-start the recovery, aligning themselves with the Federal Reserve’s stance. Barker, who left the bank on May 31, said officials are balancing between two “quite acute” concerns of accelerating inflation and slowing economic growth.
“Inflation has been above target for 26 of the last 32 months and it’s been quite a long way over that target” of 2 percent, she told CNBC. A concern with quantitative easing is that “the result was that it pushed inflation expectations up. That’s why inflation has been running higher than expected.”
Policy makers on Sept. 9 kept the benchmark interest rates unchanged at a record low of 0.5 percent, overruling Andrew Sentance’s call for a quarter-point increase to prevent inflation expectations from becoming dislodged. Barker said U.K. inflation may be “quite low” in two years’ time.
She also said the bank isn’t involved in a “race to the bottom” on currencies by keeping rates low.
“We certainly, when I was on the panel, never had a policy to target the currency,” Barker said, adding there may not be much benefit from a further weakening of the pound.
“We’ve had a very big adjustment already and we are seeing some benefits,” she said. “I’m not sure that a weaker pound would be very helpful particularly given the worries we have on inflation at the moment.”
Barker also said the U.K. housing market was a “worry” as if it were to deteriorate it would put pressure on banks’ balance sheets. With government measures to aid the property market expiring, “it’s not surprising to see the market come back a bit,” she said.