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Lomax Reluctant on More BOE Stimulus as Effects Remain Unclear

Oct. 15 (Bloomberg) -- Former Bank of England Deputy Governor Rachel Lomax signaled she would be reluctant to expand the central bank’s stimulus program and said such measures risk fueling asset bubbles.

Further so-called quantitative easing “makes me fairly queasy,” Lomax, the U.K. central bank’s chief of monetary policy from 2003 to 2008, told a London conference organized by HSBC Holdings Plc yesterday. “What exactly does it do? It pushes up asset prices, but how effective is it in stimulating domestic demand? We really don’t know.”

Bank of England officials have joined counterparts at the Federal Reserve in mulling whether to pursue more unconventional monetary policies to aid economic growth. With details of budget cuts due next week, the U.K. central bank this month kept its interest rate at a record low of 0.5 percent and held its bond purchase plan at 200 billion pounds ($317 billion).

Asked whether she would support more asset purchases if she were still a policy maker, Lomax said she would want to see more data on the economy and details of next week’s spending review by the government. “If they go ahead with the worst case scenario on risk retrenchment, I’d be voting for more QE, but with a heavy heart,” she said.

The government may be betting that if it does cut the deficit, the Bank of England will compensate by easing monetary policy, she said. That comes at a time when policy maker Andrew Sentance keeps up the campaign he began in June to raise interest rates and other members of the Monetary Policy Committee haven’t yet endorsed colleague Adam Posen’s call for more bond buying.

Stimulus Hope

The government’s plan seems to be “based on the hope that the central bank will step in by switching on more QE if things go wrong,” she said. “The bank may or may not oblige. There are at least three opinions rattling around there.”

Lomax said easier monetary policies in the advanced nations may spur emerging markets to revalue their exchange rates as capital enters their economies seeking bigger returns. “It may be the threat of a period of ultra-loose monetary policy will succeed where lecturing has failed,” she said.

DeAnne Julius, another former Bank of England policy maker, also sounded caution on the central bank’s stimulus plan.

“It is time to begin withdrawing the stimulus,” the Yorkshire Post cited her as saying in an interview published yesterday. “Interest rates are very low and the deficit is very large so it is tricky to come out of a situation of extreme policy stimulus like that. I know that people in those positions at the Bank of England are debating very actively about what needs to be done.”

To contact the reporters on this story: Simon Kennedy in London at; Jennifer Ryan in London at

To contact the editors responsible for this story: John Fraher at

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