Future Bank MPC member questions low gilt yields

LONDON (Reuters) - The fiscal situation is much worse than expected and raises questions about whether lower gilt yields are sustainable, Bank of England Monetary Policy Committee member-designate David Miles said on Friday.

"The fiscal situation is far worse than anyone imagined 12 months ago yet gilt yields are lower, is this sustainable?," said Miles, who takes over from David Blanchflower on the MPC in June, in a presentation for a conference in London.

Miles, who has been chief UK economist for Morgan Stanley for several years, said, that public debt could hit 70 percent of GDP and even further if the financial sector were to need more support.

But he added that: "There are coherent reasons to be relatively optimistic on the UK outlook."

The rate cuts, fiscal stimulus, operation of automatic stabilisers and the weakness of sterling could add 5 percent to GDP, he said.

"There has been a massive, and recent, policy response. The monetary and fiscal stance is set to be highly stimulative," Miles said.