ECONOMIC uncertainty could see the Bank of England boost its quantitative easing programme even further, its director for markets has revealed.
In today’s exclusive interview with City A.M., Paul Fisher, a member of the monetary policy committee, said he was open-minded on the possibility of voting for more easing later in the spring.
“The outlook for the economy is incredibly uncertain,” Fisher said. “If anything I feel slightly more comfortable about the inflation outlook than the outlook for growth.”
Inflation has been relatively stable, Fisher argued, while the Bank remains concerned by economic prospects.
“At this moment in time I would have a completely open mind going into the next round as to whether we would want to do more QE or not,” he said. Yet Fisher admitted that the Bank fears further upward inflationary shocks from oil prices.
“The last thing we need at the moment is another upward cost shock coming from oil prices,” he said.
“Just as we see inflation starting to fall back towards target – it’s halfway back from its peak – we don’t want it to be blown off course again, upwards, from a shock like that.”
UK consumer price inflation has been above its two per cent target for 26 straight months.
Fisher and his fellow rate-setters remain committed to their asset buying scheme to boost the economy.
“When we did the programme in October, I always thought it was more likely we would do more than not,” Fisher revealed, “because the risk at that time was of the economy slipping back into a severe recession.”
The Bank feared that the slide into economic contraction predicted for the end of last year would carry on into 2012.
“That downward slide doesn’t seem to be crystallising – that is as good as you could say at the moment,” Fisher said, “but it was still worth doing a bit more QE.” This month the Bank unanimously voted for more QE, with Fisher and six colleagues opting for a further £50bn, taking the Bank’s total planned holding to £325bn.
Minimum tranches of £50bn seem to be favoured by Fisher. “I think £50bn puts us in a better place to have that free choice when it comes to make [future decisions],” he said. “I mean £25bn is neither here, nor there, really, in the…operations that we’re doing.”
Fisher confirmed that interest rates would not begin to be normalised while asset-buying was ongoing. He also ruled out the Bank purchasing assets other than gilts as a means of stimulus. “People suggest it, but you never hear a very good reason why we should do it,” he said.
The Bank’s accommodative policies have protected the economy from sharper dips in output, Fisher claimed.
“It’s very difficult for people to see it but the unemployment rate is much lower than you would have expected given the fluctuation we’ve had in output,” Fisher said. “More companies went bust in the early 1990s when the change in output was only half the size, so we think monetary policy has been supportive to help shut off some of those negative effects.”