LONDON (Reuters) - Bank of England policymakers’ warnings about the risks facing the economy from the euro zone and weak consumption at home have fuelled talk they will expand their asset purchase programme once the latest round ends in February.
Many economists say the Monetary Policy Committee members’ downbeat tone means a further expansion of the bank’s gilt-buying scheme is now just a question of timing.
Here is a summary of the public positions of the Bank’s nine rate-setters, who all voted in November to leave the QE total unchanged and to hold interest rates at 0.5 percent.
Painting a gloomy picture in parliament on November 28, King warned of “enormous challenges” ahead for the British economy and said it would not be easy to get through the latest downturn.
He said he feared the UK economy will stagnate over the next six months and warned that the euro zone debt crisis could make things even worse.
In comments published in his annual report to parliament, King said the crisis had already weakened net trade, created higher credit spreads and sowed doubts that will deter families and businesses from spending.
“The outlook for output growth in the near term is considerably weaker than even three months ago,” he wrote.
After voting to expand the QE programme in October, King said he was prepared to adjust policy in either direction, but his comments make clear that he sees the biggest risks to growth and inflation on the downside.
The bank’s former chief economist said early in November that the 2012 outlook had worsened since the start of the year.
“The probability of low growth outturns over the next year or so is materially higher now that it was in the early part of the year,” he said during questions after a speech in London.
Bean, who has tended to vote with the majority over policy changes, said the committee would have to adjust its stance if the government alters its fiscal plans. [ID:nL9E7K900J]
In his speech, Bean struck a slightly less downbeat tone than King, and unlike some of his other MPC colleagues, he stopped short of discussing a possible recession in 2012.
In a rare speech on November 22. Tucker challenged some of the more apocalyptic forecasts for the UK economy and reminded people that it will recover.
“Gloom should not be overdone,” he said. “The record is that flexible economies with sound macroeconomic regimes recover from almost any crisis. The UK will recover.”
The bank’s decision to support the economy through buying gilts must be balanced with maintaining its credibility in keeping inflation close to its target, he added.
The deputy governor said the bank’s judgement would come under intense scrutiny in the next few quarters when it becomes clear whether inflation running at 5 percent falls back to its 2 percent target.
Tucker, who is in charge of financial stability at the bank, is often seen as being among the more hawkish MPC members. However, he rarely speaks in detail on monetary policy issues and his exact stance is far from certain.
Seen as one of the most hawkish MPC members, Dale has made few public comments in the last month that would appear to suggest a change in his policy stance. He voted for rate rises at six out of this year’s 11 meetings.
Speaking at the bank’s inflation report news conference on November 16, he said consumption was the key to the recovery.
“The pace of this recovery we have seen over these two years is far weaker than we have seen in the past. That is due very largely to consumption. (That) is what helps to drive recoveries -- we haven’t seen that.”
Dale voted for rate rise between February and July, the sole non-external MPC member to take that line since the start of the financial crisis.
He abandoned his rate-hike call in August and backed more QE in October. In a Reuters interview published on October 12 he stressed the economic situation was not as bad as in the 1930s.
Seen as one of the more dovish MPC members, Fisher has given bleak warnings about the state of the global economy and talked of the need for more QE.
“I still think we might need to do some more,” Fisher, the central bank’s executive director for markets, told the Sunday Times in an interview published on November 27.
He added on November 28 that the MPC was prepared to act.
“I don’t know yet what amount of QE we’ll actually end up doing ... If we think we need to do more, we will do more,” he told parliament’s Treasury committee.
“We are recovering from a recession the likes of which we haven’t seen since the Great Depression, we’ve got a global financial crisis that we’ve never seen before.”
However, he said the QE programme would become more risky if the bank kept going faster and faster because the market has a limited capacity for buying gilts.
After joining the MPC in June, Broadbent has voted with the majority at all six policy meetings.
The former Goldman Sachs economist warned on November 24 that there was “clearly a risk” that the British economy could slip into a double-dip recession and that overall the outlook was clearly subdued.
However, he said inflation expectations “remain pretty stable” in the gilts market.
In his first interview on August 22, he said that he had dropped some of his earlier more hawkish views, when he was concerned that high inflation could damage public confidence in the Bank and trigger a wage-price spiral.
He told reporters at a Reuters event in September that he was close to supporting more QE due to flat-lining growth in Britain and the euro zone, and last month warned that some of the risks emanating from the euro zone were too big to offset.
Miles reinforced his dovish reputation on November 24 when he stressed that policymakers are in a position to do more QE if needed.
“We have the ammunition and a willingness to use that ammunition. We haven’t run out of options or tools in terms of monetary policy,” he said in an interview with the Yorkshire Post, a regional newspaper.
Miles, who began a three-year stint on the MPC in June 2009, having previously worked as chief UK economist at Morgan Stanley and as a finance professor, also said the UK economy was in for a period of low growth in the coming quarters.
He also said he saw a risk of a country being forced to leave the euro zone.
“I don’t think any of us can feel confident one way or another about whether all the countries that are currently in the euro zone will still be in it,” Miles said in an interview with ITV.
Known as the committee’s “arch-dove,” he has voted for an expanded asset purchase programme in all but one of this year’s policy meetings. He also voted for more QE three times in 2010.
The U.S. academic said on November 28 he was more worried about stagnation than inflation or deflation.
“It’s about very large, real shocks bumping the economy up and down around a relatively austere, low-growth path,” Posen said at an event in New York.
Earlier in the month, Posen urged the European Central Bank and the U.S. Federal Reserve to buy significant amounts of government bonds to stimulate their economies.
“Central banks and governments can engage in forms of co-ordinated action that will target the burden of past debts that is hanging over the global economy,” he said.
Since the MPC voted to extend QE, he has stopped short of predicting recession and said BoE asset purchases should succeed in fending off deflation.
After voting for a rate rise to tame inflation for the first seven months of the year, Weale has changed tack, voting with the majority to hold borrowing costs.
He said on November 25 that Britain faces a “quite appreciable” risk of another recession and said there was a good case for a further round of QE once the current one ends in February.
“Unless the economic situation improves, there is likely to be a strong case for extending the asset purchase programme after the current one comes to an end,” he said.
There was no reason why the bank’s QE programme could not be widened to include index-linked UK government bonds, he added.
Reporting by Peter Griffiths