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Bank of England's Weale sees more room for policy manoeuvre
April 18, 2013 / 3:35 PM / 5 years ago

Bank of England's Weale sees more room for policy manoeuvre

LONDON (Reuters) - The Bank of England has more scope to restart its asset purchase stimulus scheme due to slower wage growth and falling commodity prices, policymaker Martin Weale said on Thursday.

The Bank of England is seen behind holly bushes in the City of London March 15, 2013. REUTERS/Suzanne Plunkett

Earlier this month the central bank was split 6-3 against restarting its 375 billion pound ($573 billion) bond purchase scheme, with Weale one of those opposed.

But in an interview with Bloomberg News, he appeared to soften his stance.

“The inflation position, at least from my perspective, has improved somewhat,” Weale said, citing favourable signals from wages and commodity prices. “They certainly make me feel there’s more room for manoeuvre.”

Minutes of the Bank Monetary Policy Committee’s April 3-4 meeting, published on Wednesday, noted an easing in inflation pressures but gave no sign that a majority of policymakers might vote for extra stimulus next month.

MPC members opposed to stimulus gave rising inflation expectations for the first time as a reason, but Weale implied that some of his worries had eased in recent weeks.

Figures earlier this week showed that annual basic wage growth fell to a record low in the three months to February, and oil prices have also fallen sharply in sterling terms.

“Inevitably if the underlying inflationary pressures look weaker, then the case for stimulus becomes stronger,” Weale said. “But, at the same time, when you have these underlying concerns about inflation expectations and inflation history, favourable news on the short term does ease my longer-term concerns.”

British central bankers must tackle a mix of stagnant economic output and inflation that has exceeded its 2 percent target for most of the time since the financial crisis.

Next week sees the release of first-quarter gross domestic product data, and Weale said he could not rule out contraction.

“There is enough of a margin of uncertainty for me not to be surprised” if there was a “minor contraction”, he said. “There’s certainly a risk of that.”

Weale said the Bank should keep an open mind about new ways to boost the economy, but was wary about “intermediate targets” other than inflation which a new remit from Chancellor George Osborne now allows the bank to pursue.

“Forward guidance, particularly if it’s associated with thresholds, in the British context, does have problems,” Weale said, adding that it could back the MPC into a corner.

He said that policymakers at the bank may “find ourselves either saying we’ve changed our mind, which would be a problem, or we’d have to tighten policy at a time when, as it turns out, no one on the committee has been voting for that.”

Reporting by David Milliken and Christina Fincher; Editing by Ruth Pitchford

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