BOE’s Tucker Says He’s Open to Expanding Asset-Purchase Program
Feb. 26 (Bloomberg) -- Bank of England Deputy Governor Paul Tucker said he’s open to adding to asset purchases, suggesting Governor Mervyn King’s defeated push for more stimulus is gaining traction with his colleagues.
King, Paul Fisher and David Miles voted to expand the bank’s quantitative-easing program from the current 375 billion pounds ($570 billion) this month, though they were defeated by a majority on the nine-member Monetary Policy Committee. Moody’s Investors Service stripped the U.K. of its top credit rating on Feb. 22, citing the “continuing weakness” of the economic outlook and its implications on the fiscal consolidation.
“The existing degree of monetary easing from QE is likely to gain more traction on spending than it had last autumn, given reduced tail risks from the international environment,” Tucker said in written testimony to Parliament’s Treasury Committee, published today. “I remain open to doing more QE depending on the outlook for demand and inflation.”
Elevated inflation has squeezed household incomes, while a crisis in the euro area, Britain’s biggest trading partner, has sapped demand for U.K. goods and hurt confidence. Britain’s economy shrank 0.3 percent in the fourth quarter and King has forecast a “slow” recovery. The lack of growth has also undermined Chancellor of the Exchequer George Osborne’s deficit- reduction plans.
Minutes of the MPC’s most recent meeting published on Feb. 20 showed policy makers discussed interest-rate reductions and measures to boost credit. King is due to retire at the end of June and will be succeeded by Bank of Canada Governor Mark Carney.
Speaking to lawmakers today, Tucker said that while the risk from the euro area had receded, it remains “a major threat.”
“It’s not certain to crystalize and we’re doing things elsewhere to protect the U.K.,” he said.
Concerns over Europe’s debt crisis were triggered afresh after election results in Italy yesterday proved inconclusive, marking a rejection of austerity measures and creating a potential political vacuum of at least a month. Italian bonds and stocks tumbled.
Tucker, echoing King’s words at the Inflation Report press conference earlier this month, said policy makers should disregard a period of elevated inflation.
“It is consistent with the MPC’s remit to look through a period of above-target inflation, so as to avoid derailing the recovery, provided that medium-term inflation expectations are anchored,” he said in his testimony.
U.K. inflation was at 2.7 percent in January, above the BOE’s 2 percent target. While the central bank forecasts that inflation will accelerate in the near term and stay above the goal for another two years, it says maintaining stimulus is the right option.
Policy maker Ian McCafferty told lawmakers today that the bank has had to exercise flexible inflation targeting over the past few years.
“We have to deliver over the medium term a low and stable inflation rate, but at the same time a stable growth picture,” he said.
--Editors: Andrew Atkinson, Eddie Buckle