Recovery could be helped by more QE, says Cameron
PRIME Minister David Cameron said yesterday that there is scope for even more monetary stimulus from the Bank of England, putting him at odds with a senior Bank official.
“Our responsible fiscal policy is being matched by active monetary policy,” Cameron enthused.
“And the independent Bank of England is able to do more to support the economy if necessary or if inflation falls below their target.”
Yet inflation stuck at 3.5 per cent on the latest consumer price index (CPI) measure, and this week the Bank’s Inflation Report warned that it could stay above target until the third quarter of 2013.
To date the CPI has remained above the Bank’s two per cent target for 28 months in a row.
“We are mindful of that and we don’t want to take risks with credibility,” senior Bank director Paul Fisher said yesterday. “People’s inflation expectations have been remarkably resilient through this episode. We need to justify that by getting inflation back to target over the next couple of years.”
Contrary to the Prime Minister’s dovish tone, Fisher said that the Bank should only consider more quantitative easing if the economy takes a serious downturn, a scenario that he does not envisage occurring.
“We’ve had a couple of quarters of negative growth, but we haven’t really had a fall back into a deep recession,” Fisher said. “If I saw that risk re-emerging, then personally I would want to think again about restarting,” he said. “If there is not that serious possibility of deflation down the road, then I think there is less impetus behind doing more asset purchases.”
In February Fisher told City A.M. that he was open-minded about whether the Bank should do more QE or keep assets at the current level of £325bn.
Since then, initial estimates from the Office for National Statistics (ONS) have suggested that the UK has entered a technical, shallow recession, although labour market figures released on Wednesday showed that employment has risen, while business surveys appear to reflect mild growth, rather than economic contraction.
“The key reason for restarting QE last October was the possibility that the UK could topple over into a deep recession again. We seem to have hopefully headed that risk off at the pass,” Fisher told Dow Jones Newswires yesterday.