BOE’s McCafferty Says He’s Cautiously Optimistic About RecoverySvenja O’Donnell
Bank of England policy maker Ian McCafferty said the outlook for inflation remains a concern and he is “cautiously optimistic” about the U.K. recovery.
“On balance, I think the outlook is now looking more encouraging than for some time,” McCafferty said in a speech to the Coventry and Warwickshire Chamber of Commerce today. He said he has “some hope for the U.K. economy in 2013 and beyond.”
The BOE’s Monetary Policy Committee has split over the need to provide more stimulus to an economy weakened by the debt crisis in the euro area and an austerity program at home. McCafferty is among the majority of six who voted against Governor Mervyn King and two others not to add to the 375 billion pounds ($571 billion) of bond purchases already undertaken by the central bank.
McCafferty said that the outlook for inflation, which is above the BOE’s 2 percent target, is “more concerning.” He also noted that if the recent decline of the pound was a reflection of the central bank’s credibility, then the “case for accommodation is much weaker.”
Still, he said there is “little evidence that inflation expectations have become de-anchored” and it remains appropriate to look through current inflation shocks.
“There remain substantial risks that may still knock us off course, not least from the challenges facing the euro area, and if required, the MPC stands ready to respond,” he said.
McCafferty said some of the headwinds to growth have faded, with credit conditions improving, partly thanks to the impact of the Funding for Lending Scheme, while business investment may “start to show some recovery.” At the same time, the international outlook is improving, he said.
On the FLS, McCafferty said while its effect on lending to smaller companies has been “less marked” so far than on the mortgage market, this was to be expected.
“The impact of the FLS is likely to be more marked in coming months,” he said. “The bank’s latest Credit Conditions Survey shows that the recent improvement in the availability of credit, particularly in the household mortgage sector, is expected to continue.”
“The economic recovery over the next year or so will continue to be slow and difficult, but I hope I have provided some reasons why the headwinds of the past may now be starting to ease,” McCafferty said. “I remain cautiously optimistic about the road ahead.”