LONDON (Reuters) - The Bank of England should be ready to reopen its programme of quantitative easing to prevent weak demand threatening Britain's fragile recovery, Business Secretary Vince Cable said on Friday.
"We cannot and will not allow the economy to fall into a trap of stagnation," Cable said in a pamphlet for the CentreForum think tank outlining proposals to foster sustainable growth in Britain.
Economists increasingly expect the Bank to restart its bond-buying programme as the economy remains weak - it has barely grown since last September - and after keeping interest rates at record low of 0.5 percent for the 30th straight month last week.
Cable highlighted the use of further quantitative easing (QE) in a list of five broad initiatives that could be taken to restore business and consumer demand, while maintaining the government's tight fiscal plans to reduce a record deficit.
"Where action is needed to sustain demand, and it currently appears to be, the best instrument available is the expansion of money supply through QE - though conditions may call for the use of more creative mechanisms designed to stimulate private credit," Cable said.
The Bank completed its first round of quantitative easing in February 2010, after buying 200 billion pounds of assets, mainly government bonds.
A decision on further QE would be taken by the Bank of England's Monetary Policy Committee (MPC) and is not the government's call. However, Cable's words could add to pressure on the MPC to do more to support the economy.
So far only one of the central bank's nine MPC members - dove Adam Posen - has called publicly for further asset purchases.
Cable, who has a background as an economist, rejected concerns that further quantitative easing would have little effect on demand and dismissed as "overdone" fears that it could stoke inflation, already running at more than double the central bank's 2 percent target.
"(QE) does appear in the light of recent experience to work and to be quick acting," said.
"The excess inflation over target is explained by import prices and one-off tax increases and there is little sign of indigenous wage inflation which is below pre-crisis levels," he added.
Pressure is growing on the coalition government to find a way to deliver a promised private sector-driven recovery at a time when lending conditions are constrained and interest rates are already close to zero.
It has brushed aside calls to change its austerity drive but said this week it would support dozens of major infrastructure projects to support growth.
(Reporting by Tim Castle; editing by Ron Askew)