Bank of England Deputy Governor Charles Bean cautioned against over-optimism following third-quarter gross-domestic-product data and said U.K. growth may be weak in the final three months of the year.
The figures were “stronger than we expected, but we should avoid getting over-excited,” Bean said in an interview with Sky News television yesterday. “It’s quite possible that we see weak growth in the next quarter. The big picture is of an economy that’s been bumping along the bottom.”
The bank’s Monetary Policy Committee will meet Nov. 7 and Nov. 8 to decide whether to increase its 375 billion-pound ($604 billion) stimulus program as it seeks to support the recovery. Policy makers are split over the need for more asset purchases, minutes of the October meeting indicated. Data on Oct. 25 showing the economy surged 1 percent, the fastest pace of growth in five years, is likely to add to divisions.
Bean said that about half of the third-quarter growth was due to a recovery from output that was lost in the second quarter because of an extra public holiday for Queen Elizabeth II’s Diamond Jubilee, while the London Olympic Games added an extra boost.
Asked how the third-quarter GDP figure will influence the central bank’s decision on whether to add to quantitative easing, Bean said that “it’s always a mistake to read too much into one figure.”
The pound fell against the dollar and was trading at $1.6066 as of 8:14 a.m. in London, down 0.2 percent on the day.
In an interview published in the Times newspaper in London today, Bank of England Chief Economist Spencer Dale was quoted as saying the third-quarter growth data doesn’t change the “big picture, which remains that output over the past year has been broadly flat.”
Dale was cited as saying that in the fourth quarter, “in terms of the headline numbers, I expect to see a very sharp fall back,” and predicting a “period of relatively weak growth over the next couple of years.”
Bean’s and Dale’s caution echoes that of Deputy Prime Minister Nick Clegg in an interview published in yesterday’s Observer newspaper.
“I have always said our recovery is going to be slow,” the newspaper cited Clegg as saying. “It is part of a long healing process; it is part of a complex rebalancing process and the recovery is going to be fitful.”
The opposition Labour Party’s business spokesman, Chuka Umunna, said in an interview on Sky that “the statistics are one thing; how people feel is another.” Businesses “are not seeing the orders come through, families, individuals are still feeling the squeeze on their living standards,” he said.
Nevertheless, Bean told Sky, there’s “reason for some optimism going forward.”
“Some of the headwinds that we’ve been struggling against in the past couple of years will be abated somewhat,” he said. “Generally speaking, real household incomes won’t be squeezed quite as much.”
Bean also noted “some progress” toward resolving the debt crisis in the euro area, Britain’s biggest export market, making for a “slightly better picture.”
Conditions in the U.K. banking system have also shown “some signs” of improvement, he said. He said that the Bank of England will be “proactive” and “interventionist” when it takes over new responsibilities for bank regulation.
“U.K. banks made significant progress in improving their resilience,” Bean said. Even so, “we still think there’s risks out there, most particularly from the euro zone.”
While inflation cooled to an almost three-year low of 2.2 percent in September, it remains above the central bank’s 2 percent target and some policy makers have voiced concerns that recent energy and food cost increases may boost price pressures.
“Normally we would have expected in an economy this weak for inflation to be quite a bit below target, and we are not seeing that,” Dale was cited as telling the Times. “This stickiness in inflation is something we need to take into account when we are thinking about exactly how much more stimulus we need to apply.”
Dale also said the recent strengthening of the pound was “not good for us in terms of keeping this sort of rebalancing of the economy,” the Times reported. “If the exchange rate shifted up very dramatically, other things being equal you would have to take that into account in terms of policy,” the newspaper cited him as saying.
Dale said officials should examine whether the central bank’s inflation-targeting regime should be changed, according to the newspaper.
“Over the next few years we should seriously think about whether that” inflation targeting “is the right kind of framework,” he was quoted as saying. “Ultimately, it is a matter for the government, but I am happy to play my role.”