King Sees Case for Supporting Recovery With More Stimulus
“What I see are signs of a recovery and I think there is a case for supporting that through additional asset purchases,” he said, according to the transcript of an interview with ITV News released today. “One can take different views on it and some of my colleagues do.”
King and two colleagues were outvoted last month in a push to expand stimulus. Today’s comments suggest the governor voted for more QE again on March 7, when the central bank held its bond-purchase program at 375 billion pounds ($566 billion). The BOE will publish the minutes of that meeting, showing how Monetary Policy Committee members voted, next week.
King also commented on the BOE’s remit to keep inflation at 2 percent, after Governor-designate Mark Carney floated the idea of flexible inflation targeting as one of several measures central banks can use to fire growth. He said there wasn’t a case for change.
“I’m not sure that there is any call for a major change in the remit,” he said. “What‘s most important is that we commit ourselves again to a very clear target for inflation of 2 percent.’’
The pound pared its gain against the dollar after King’s remarks, to trade at $1.5089, little changed from yesterday.
In the first part of the interview broadcast yesterday, King said policy makers aren’t trying to talk down the pound while acknowledging that its drop since before the financial crisis has helped exports.
‘‘The markets determine the level of exchange rate, not us,” King said, according to a separate transcript. “We’re certainly not looking to push sterling down.”
The pound has fallen about 7 percent against the dollar and 6.6 percent versus the euro since the beginning of the year. It’s the second-worst performer after the yen this year among 10 developed-market currencies, according to Bloomberg Correlation- Weighted Indexes.
The BOE governor said sterling’s decline since before the crisis helped to boost exports and prevent unemployment from rising to a higher level. On a trade-weighted basis, the U.K. currency fell about 30 percent in 2008 and 2009.
King said sterling was now “broadly stable” and “at the same level we were after the impact of the financial crisis.”
“The markets judged then that was the right level for the U.K. looking ahead and they seem to judge that now,” he said. “We just have to accept that and adjust and without the fall in the exchange rate that did occur from before the crisis to now, our export industry would not be growing as they are and unemployment would be a good deal higher.”
Recovery ‘In Sight’
In its Quarterly Bulletin published yesterday, the BOE noted that there was a “particularly large” drop in the pound in recent months, which it said may have been partly related to a weaker demand for currencies traditionally considered havens.
Still, it said some of the decline “may also have been due to the impact of U.K.-specific factors, including the outlook for growth and the country’s sovereign credit rating.”
On prospects for the economy, King said the recession in the euro area, Britain’s biggest trading partner, is holding back the rebalancing. The crisis in Europe has also hurt confidence, which has prompted companies to “hold back” on investment, he said.
Nevertheless, King said that the recovery of the U.K. economy was “in sight.”
“I think that during the course of 2013 we will see the recovery come into sight,” he said. “If you take away what happened in the North Sea oil production and in construction, the U.K. economy even last year grew by 1.5 percent. There is momentum behind the recovery that’s coming.”
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