Bank of England Policy Maker Ben Broadbent said officials can implement more targeted tools alongside quantitative easing to fix Britain’s economy, and that the banking system is in need of further repair.
The Funding for Lending Scheme “is an example of such a policy and I think it has helped,” he said in an interview in his office in London yesterday. “We will continue to think about other ways of helping the financial system to improve. I hope we’ve always had an open mind about this.”
Broadbent was speaking the day after the Bank of England said the economy was facing a “slow and sustained recovery” amid continuing downside risks from the euro region. He said that while quantitative easing remains an effective tool, policy makers could take further action to address continuing strains in the financial sector.
“I’m confident it had an important effect and I still believe QE does actually,” he said. “But that doesn’t necessarily mean that there isn’t something else which would help.” If the problems in the financial industry are holding back the recovery, “then doing something directly to help the banking system function better may well be desirable.”
Broadbent, a former Goldman Sachs Group Inc. economist who joined the BOE in June 2011, said he’s “cautiously optimistic” about improvement in financial markets over the past six months. His comments contrast with those of Governor Mervyn King, who said on Feb. 13 that optimism in markets may not reflect the underlying data on global economies.
“I’m quite encouraged by what’s happened in the last six months to financial markets, which seems to me a sign that some of that perceived tail risk has diminished,” Broadbent said. “I don’t think the rally in the last six months is arbitrary.”
On the economy, Broadbent said it has been “flat” over the past year and that sharp falls in some sectors in 2012 should diminish in 2013.
There will be “some improvement in aggregate GDP over the next year,” he said. “Marginally things are a little brighter but it comes after a sobering period of downward revisions” to the BOE’s forecasts.
Data today may show U.K. retail sales rose in January for the first time in three months. Sales increased 0.5 percent from the previous month, according to the median of 24 estimates in a Bloomberg News survey. The Office for National Statistics will publish the data at 9:30 a.m.
Nevertheless, Broadbent noted that risks remain in the financial system amid investor concern about the transparency of banks’ balance sheets.
“One should look to act where you think the problems really lie,” he said. Ideas about future policy tools “will be presented -- these discussions -- as and when we have them. I don’t have a closed mind about what we might do.”
Broadbent said the central bank’s FLS, introduced last summer to help boost credit, had shown “pretty positive” signs and was a good example of a policy designed to address a specific problem in the economy.
Broadbent also said he didn’t see a “great need” for the Bank of England to adopt a Federal Reserve-style forward policy guidance, as favored by Governor-designate Mark Carney.
“I’m not convinced it would make a great deal of difference,” he said. “I’d be nervous on whether it was the right thing to do or not, I’m not convinced it would bring great benefit. But it’s another thing to which we’re open.”
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