The economy is likely to get steadily weaker through the rest of this year, and the Bank of England's future decisions on asset purchases will be largely driven by overseas developments, Bank chief economist Spencer Dale has said.
In his first public comments since Bank's Monetary Policy Committee surprised markets by launching a second round of quantitative easing last week, Dale said that Britain was suffering one of the worst ever periods of financial turmoil.
The economy has largely stagnated for the past 12 months, and Dale said the deepening euro zone debt crisis had increased the downside risks to inflation further down the line.
Asked if the £75bn of gilt purchases over the next four months that the MPC approved last week would be enough to help the economy turn the corner, he told Reuters: "I think it will depend critically on what happens in our economy but even more importantly in the rest of the world."
"The main reason why our economic outlook has deteriorated very substantially over the past few months is what's happening in the rest of the world, and therefore, how we will set the stance of policy going forward," he added.
Dale said the failure of euro zone leaders to tackle Greece's debt crisis had been a major factor behind a downward spiral in global economic confidence, and that Bank would be keeping a close eye on future developments.
His downbeat view of the economy was reinforced by official data published after the interview showing unemployment rose to a 17-year high in the three months to August.
City A.M. Reporter