Bloomberg News

BOE’s Fisher Says He Would Consider Expanding Asset Purchases

June 02, 2011

June 2 (Bloomberg) -- Bank of England policy maker Paul Fisher said he would consider adding to the bank’s emergency bond purchases if the U.K. economy took a “sudden downturn.”

“I would consider it and I’ve said I still hold that possibility open,” Fisher, the bank’s executive director for markets, said in an interview with the Daily Mail newspaper published on its website late yesterday. Still, he added he was “somewhat reluctant” since the threat of deflation subsided.

Britain’s economy expanded 0.5 percent in the first quarter, barely enough to offset the contraction in the final three months of 2010. An inflation rate that is more than double the bank’s 2 percent target and forecast to accelerate has split the Monetary Policy Committee, with the majority, including Fisher, voting to keep the key rate a record low.

“I want to make sure we get over this soft patch before we begin the inevitable” of raising rates, Fisher said. “Zero consumption puts a very heavy burden on the export side to deliver and overall growth and flat consumption is something which is very vulnerable to downside shock.”

A Bank of England spokeswoman in London confirmed Fisher’s comments and said they expressed his personal views, not those of the bank.

Fisher also questioned whether it would “be right to increase interest rates and possibly risk running the economy into recession just so we could be more certain of keeping our credibility?”

Andrew Sentance, who left the MPC earlier this week, said on May 31 that policy makers’ failure to keep inflation in check risked eroding their credibility.

Risk of Bubbles

Questioned on the risk of bubbles and exchange-traded funds, Fisher said “we were getting worried about it during the course of last year because it has been growing very fast.”

“It’s perfectly good technology that has a very good use and the risk is it can be taken to the same places as securitization was,” he said. “And you don’t want that.”

The central bank is looking at the involvement of large U.K. institutions in the euro area and “we pretty much know their exposures to the European periphery,” Fisher said. “Directly they are not worrying.”

--With assistance from Jennifer Ryan in London. Editors: Andrew Atkinson, Fergal O’Brien

To contact the reporter on this story: Svenja O’Donnell in London at sodonnell@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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