The Bank of England needs to pump at least another 50 billion pounds ($77.8 billion) into Britain’s “stalled” economy, says David Miles of its interest rate-setting committee, warning that only a “substantial” third round of emergency bond-buying will kick-start recovery.
His comments, in an interview with the Financial Times, came amid growing expectations in financial markets that the BoE could embark on more “quantitative easing” as soon as next month, printing money to buy gilts in an attempt to drive down borrowing costs for households and businesses
Mr Miles voted for additional QE at this month’s meeting of the Bank’s nine-strong Monetary Policy Committee – along with three other members including Sir Mervyn King the governor.
He said: “Do we need a more expansionary monetary policy? ‘Yes’. Should it be a substantial change in asset purchases? ‘Yes’. Is 50 billion pounds a substantial number? ‘Yes it is’. Could one know in advance what is exactly the right amount to do? ‘Absolutely not’.”
However, Mr Miles, regarded as the committee’s most dovish member, offered no support for politicians and economists who insist that a loosening of the government’s austerity measures is necessary for recovery. The UK’s economic performance has been significantly worse than the MPC forecast and official data have shown it slipping back into a shallow recession.
When asked whether public spending cuts to reduce the budget deficit were to blame, Mr Miles said: “I can’t see any reason for thinking that.”
Instead, he attributed the feeble performance of the economy initially to higher than expected commodity prices, which pushed up inflation and eroded household incomes.
More recently, he added: “A pretty substantial increase in the costs of funding for most UK banks then got passed through in the form of some increases in the costs of lending to corporates, and pretty clearly some increase in the costs of mortgages. That has been pretty unhelpful.”
Emergency liquidity operations instigated by the central bank last week, providing cheap six month money for banks, were likely to help the operation of monetary policy, because they would remove banks’ fear that they needed to build huge piles of very liquid assets rather than lend, Mr Miles said.
“It’s a complement to one of the levers we’ve got, rather than a substitute because [the MPC] has run out of effective levers.”
However, Mr Miles was not persuaded by the arguments of some in the majority of the MPC that the committee should wait for other bodies to act on liquidity and funding rather than pulling the QE lever. “The argument one wants to wait and see what others did was not one I found compelling,” he said.