THE TOP Bank of England economist, Spencer Dale, yesterday argued that further loose monetary policy, including increased asset purchases, could be counterproductive.
Dale, who sits on the Bank’s Monetary Policy Committee (MPC), which sets interest rates and quantitative easing (QE) targets, said that monetary expansion through bond purchases may not be an appropriate policy if the economy is constrained by supply, rather than demand.
“If the handbrake on your car is stuck, putting your foot further and further down on the accelerator won’t get you very far before the car starts to overheat,” he said in a speech at Trinity College Dublin.
Dale voted against the most recent round of QE, which added £50bn, bringing total purchases to £375bn.
“Monetary policy can and should provide short-term support in times of need, but it must avoid becoming a long-term crutch obstructing the required rebalancing of our economy,” Dale contended, saying that sustained QE could encourage excessive risk-taking and actually delay economic recovery.
He also cautioned against rising inflation, and warned that pre-crisis rates of economic growth may not be possible in the current climate, and were therefore an inappropriate benchmark on which to base monetary policy.