Speaking in Hull, Charlie Bean said QE could still hold down yields, but questioned “the degree of traction these lower yields have on demand at the present juncture.”
It is “plausible” that the boost to demand “will be weaker when uncertainty is elevated and when banks and some households are concentrating on repairing their balance sheets,” he said.
“For instance, a modest fall in the cost of capital may do little to boost investment spending when the environment is so dominated by uncertainty about the outlook for demand.”
While stressing that QE is not yet “impotent”, the deputy governor added: “I think there are reasons to believe the effect of lower yields may be weaker than usual at the current juncture.”
Bean voted for an extra £50bn in asset purchases in July of this year, but the previous month he had not followed the Bank’s governor, Sir Mervyn King, in proposing more quantitative easing.
His words suggest he will not be supporting more QE in 2012’s two remaining policy meetings.
During last night’s speech Bean also admitted that the financial crisis had humbled himself and his senior colleagues and exposed the Bank’s shortcomings.
Bean said central bankers had failed to understand the risks building up in the global financial sector, and said that the Bank’s new regulator, the Financial Policy Committee, could hopefully prevent future crises.
“It has been a challenging but humbling experience. We knew less than we thought. And we forgot some of the lessons of history,” Bean said.
“The crisis exposed... not only the inadequacy of our understanding of the true nature of the risks that had built up in the financial sector, but also the need for suitable instruments to deal with them.”
Bean also talked down the prospect of the Bank monetising the government’s debt by cancelling gilts it has bought. Such as policy “is not as good an idea as it sounds,” he told a University of Hull audience.