Former Bank of England policy maker John Gieve said that the central bank needs to “take action” to boost economic growth and prevent credit conditions tightening further.
“The slowdown seems to be continuing across the West, there’s evidence credit conditions are tightening again,” Gieve said on Bloomberg Television in London today. “I’m expecting the Monetary Policy Committee to be more prone to action.”
The Bank of England is under pressure to restart its so-called quantitative-easing program after the economy grew less than expected in the second quarter and as Europe’s debt crisis weighs on the global outlook. Gieve said policy makers may restart bond purchases after their monthly meeting tomorrow, or at least indicate they are ready to do so.
“We are facing a real potential crisis in Europe,” Gieve said. “At the very least I’d expect the bank to say they are ready to restart QE if this continues and Europe doesn’t get its act together.”
Gross domestic product rose 0.1 percent from the first quarter, lower than the 0.2 percent previously published, the Office for National Statistics said today. Consumer spending plunged 0.8 percent, the most since the first quarter of 2009.
Former MPC member Andrew Sentance argued that while economic growth was “disappointing,” resuming bond purchases may fan inflation by weakening the pound further. The U.K. currency has fallen about 24 percent on a trade-weighted basis since the start of 2007.
“One of the issues behind growth is inflation itself is very high,” Sentance told Bloomberg. “What would be a mistake is to start the program of QE again. There’s a great risk that more QE will push the pound down further and generate more inflation.”
Sentance, whose term at the MPC ended in May, also said growth may pick up in the third quarter. A U.K. services index unexpectedly rose from an eight-month low in September as new business increased, Markit Economics said in a report today.
“We may see some growth in the third quarter,” he said. “I’m not sure we’re heading into recession. Exports are pretty competitive.”