Bloomberg News

Broadbent Says Euro Crisis Is Biggest Risk to U.K. Economy

February 28, 2012

Bank of England policy maker Ben Broadbent said Europe’s debt crisis remains the biggest risk to the U.K. even after “important” measures by euro-area officials to tackle the turmoil.

“There was some important policy decisions taken in Europe at the end of the last year; support was provided for the banks and that’s been very important,” he said in an interview with Belfast-based Ulster Television broadcast today, according to a transcript of his remarks. “Over time the situation will improve. But I don’t think we should imagine, hopeful as it is, that these more recent policy actions have solved everything. There are risks that still remain.”

The European Central Bank may grant banks 470 billion euros in long-term loans today, according to a Bloomberg News survey, after lending a record 489 billion euros in December. The measure, aimed at easing liquidity strains in the financial system, helped fuel a rally in bonds, lowering borrowing costs for some euro-area periphery nations.

While Broadbent noted the deal on a second Greek bailout, he said the region has still not fully stemmed the crisis.

If the Bank of England’s Monetary Policy Committee “had to say what was the biggest single risk facing the U.K. economy, it is still the situation in the euro zone,” he said.

On the outlook for interest rates, Broadbent said central bank officials “don’t make predictions or promises.”

“Having said that, they’re very low for a reason,” he said. “The primary reason being the tightness of credit and the repair that has to be done to the financial system. And that’s not going to be over anytime soon.”

The Bank of England increased its target for bond purchases by 50 billion pounds to 325 billion pounds this month after the economy shrank in the fourth quarter. It has said it expects a gradual recovery this year.

“We expect consumption growth to pick up later this year, and as the supply of credit resumes we would expect investment to start growing strongly as well,” Broadbent said.

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


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