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November 15, 2010 1:58 pm
The Bank of England’s forecasts suggest that, were it not for inflation, it should maintain the large stimulus it is providing to the UK economy or take it even further, according to Martin Weale, a member of the monetary policy committee.
The Bank’s projections for the economy point to a substantial amount of slack remaining even at the end of the forecast period in three years, Mr Weale said in a speech on Monday, suggesting that current loose monetary policy or a further boost would be necessary.
But because inflation is still more than 1 percentage point above the 2 per cent target, it was too early to be clear that more quantitative easing was necessary or to be sure that monetary policy could be kept as loose as might be desirable.
The Bank’s estimates suggest “that there is room for further cyclical expansion over and above what is shown in the forecast”.
“In such circumstances, it would be right for the monetary policy committee to do what it could to stimulate the economy further, provided that such a stimulus were consistent with meeting the inflation target,” he said.
The speech puts Mr Weale in the MPC’s majority “wait and see” camp, as opposed to the call by Adam Posen for additional quantitative easing, and that by Andrew Sentance for a rise in interest rates. Earlier this month, the MPC voted to keep rates and quantitative easing unchanged. With the economy growing rapidly in recent quarters and inflation expected to be well above target for all of next year, members of the committee are finding it hard to justify extra stimulus despite fears about what the impact of sharper cuts in public spending will be.
“The monetary policy committee has to chart a course between the Charybdis of recession and deflation and the Scylla of excess inflation,” he said. “At the present time a majority of the committee does not see a compelling case either for slackening or for tightening policy . . . We think, at least for the time being, that the right course is to leave policy unchanged.”
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