Bank hints that easing is finished
THE BANK of England hinted yesterday that it is coming to the end of its mass asset purchasing programme.
Asked if more quantitative easing would be required to stop inflation falling below its targeted two per cent rate, deputy governor Charlie Bean said: “The risks around the target are equally balanced at the forecast horizon” – suggesting that more loosening would not be required to satisfy the mandate.
The Bank’s latest inflation report shows the consumer price index falling below the target next year but then gradually moving towards it at the “horizon” – around 2015.
The Bank raised its two-year inflation forecast to around 1.8 per cent – based on existing policy levels – which is higher than most economists had expected.
Lower inflation expectations had been keeping alive prospects of the Bank injecting further funds into the economy through its bond-buying programme.
Yet governor Sir Mervyn King warned that the economy faces “substantial headwinds” and that the Bank could easily step up its bond purchases again if more shocks occur.
However, he argued that other policies might be more effective in boosting economic growth in the longer run, including supply side reforms.
The longer-term picture in banking is very positive, King said, arguing that banks have cleaned up their balance sheets and built up their capital more quickly than many of their European counterparts.
That means the sector is healthier than raw lending figures might suggest, and the sector is well along the path to recovery.
King said that the economy will “zigzag” through 2012, but that the UK is back on a growth footing and will expand strongly in 2013 and 2014.
The relatively upbeat inflation report expects growth of around three per cent in 18 months from now.
King also praised chancellor Osborne’s fiscal plan, saying countries like the US would be better placed if they had a clear goal in sight on their budget deficit.
“Many of my colleagues and peers abroad would very much like to be in a position where they have put those two conditions in place,” he said.