Bloomberg News

BOE’s Miles Hints He May Be Edging Toward More U.K. Stimulus

September 28, 2011

(Updates with comment from economist in eighth paragraph.)

Sept. 28 (Bloomberg) -- Bank of England policy maker David Miles signaled he may be moving closer to voting for more asset purchases to aid the economy, saying the central bank has “substantial ammunition” if needed.

The case for more so-called quantitative easing “has become in my mind quite finely balanced,” Miles said in an interview in the Times newspaper published today. “It wasn’t quite as closely balanced a decision two or three months back, before we really got the bad news over the summer.”

ABN Amro Bank NV changed its forecast yesterday and said the Bank of England will restart asset purchases at next week’s policy assessment. Policy maker Ben Broadbent said on Sept. 26 that he was “reasonably close” to voting for more QE at this month’s meeting, when Adam Posen was the sole official to call for more purchases.

U.K. economic growth slowed in the second quarter and recent indicators of consumer confidence, manufacturing and services have all weakened. At the same time, a worsening debt crisis in Europe is affecting Britain’s largest trading partner and increasing investor concern that the euro region may slide back into a recession.

Miles said the central bank’s Monetary Policy Committee should initially focus any further purchases on gilts rather than other assets, the Times reported.

‘Highly Likely’

“I am pretty clear that the mechanisms that made QE quite effective in 2009 when we bought most of the assets are still in place today,” Miles said.

The pound was little changed against the dollar today and traded at $1.5617 as of 10:42 a.m. in London. It has fallen 5.4 percent since Aug. 17, when minutes of the central bank’s meeting that month showed two members ended their push for interest-rate increases and others “considered whether there was a case for increasing” the bond plan.

“Further QE seems highly likely to us, and the more pertinent question we see is whether the committee will move in October or November,” Simon Hayes, an economist at Barclays Capital in London, said in a note to clients today. While a move in November is more likely, “the MPC has clearly bought itself the option of moving in October -- nobody could claim such a move would be a major surprise.”

The central bank bought 200 billion pounds ($313 billion) of bonds in a program that ended in early 2010. It said in a report on Sept. 19 that the purchases had “economically significant” effects on the economy.

Citigroup Inc. forecasts the Bank of England may purchase as much as 400 billion pounds of bonds in a new round of QE. The purchases may resume as early as the Oct. 6 decision, Citigroup said this month, when cutting its U.K. economic growth forecast to 1 percent this year and 0.7 percent in 2012 from 1.1 percent and 1.3 percent respectively.

--With assistance from Scott Hamilton in London. Editors: Simone Meier, Andrew Atkinson

To contact the reporter on this story: Fergal O’Brien in London at fobrien@bloomberg.net

To contact the editor responsible for this story: Matthew Brockett at mbrockett1@bloomberg.net


Cash Is for Losers
LIMITED-TIME OFFER SUBSCRIBE NOW
 
blog comments powered by Disqus