Bloomberg News

Posen Says BOE to Vote for QE Next Month If Forecasts Justify It

January 23, 2012

Jan. 23 (Bloomberg) -- Bank of England policy maker Adam Posen said officials will vote to increase the target for bond purchases next month if new forecasts justify expanding stimulus again.

“If we choose to do more in February, which we may or may not, but if we choose to do more in February, it’ll be because the forecast demands it,” Posen told reporters at an event in Nottingham, England.

While the Bank of England’s nine-member Monetary Policy Committee left the target for bond purchases at 275 billion pounds ($428 billion) this month, some officials have said more so-called quantitative easing may be needed. The central bank will have new growth and inflation forecasts at its next policy meeting in February.

Posen also said that “things are a little better than in October,” when the central bank announced a 75 billion-pound expansion of QE, its first such move since 2009.

There are “material ways in which at least downside risks have materially reduced,” he said. Still, “that’s not a huge recovery forecast and that’s not a forecast for inflation above” the bank’s 2 percent target.

The policy maker said the central bank’s resumption of bond purchases had made “a material difference in putting a floor under things,” while the European Central Bank’s efforts to avoid a credit crunch had helped. Other factors that have helped to boost the outlook since October are “good news” on the global economy outside Europe and funding markets not seizing up as much as they had done in 2008.

Inflation Forecast

Posen said that if the parts of the economy that have not lost as much labor as expected during the recession, such as the financial industry, do so in the next few years, “inflation will be coming down in the next couple of years and unemployment will unfortunately likely rise some over the next couple of years, but not hugely.”

“If that is our forecast, the MPC is right to have done quantitative easing to try to get us from having inflation be too low and employment too low in two to three years’ time, and the committee is right to consider, as we will be doing in a few weeks, whether we need to do more QE,” he said.

Posen also said MPC members did not consider the speed of bond purchases as more important than the total stock.

“In terms of pace, it’s not really something the committee is talking about,” he said. “It’s primarily about ‘What’s the right number, and secondarily, operationally -- subject to getting the right number out there, -- how do we not screw up the markets and the Debt Management Office?’ Pace does not really come up.”

The central bank will publish the minutes of the January meeting, revealing how the MPC voted, on Jan. 25. The Office for National Statistics will publish the first estimate of fourth- quarter gross-domestic-product data, at the same time. Economists in a Bloomberg News survey forecast a 0.1 percent contraction.

--Editors: Fergal O’Brien, Leon Mangasarian

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

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


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