LONDON (MNI) – The Bank of England Monetary Policy Committee has
not run out of policy options, MPC member David Miles said.
The minutes of the November MPC meeting stated that gilt
“market capacity made it difficult to increase the monthly rate of
purchases substantially,” effectively acknowledging there is a ‘speed
limit’ to quantitative easing, but Miles told the Yorkshire Post the MPC
could provide more stimulus if required.
MPC members voted unanimously not to extend QE at the November
meeting, but Miles said “If we need to, we can, for sure. We have the
ammunition and a willingness to use that ammunition. We haven’t run out
of options or tools in terms of monetary policy.”
Miles set out the “portfolio effect” theory of how QE works, saying
the money the central bank spends buying gilts will likely feed through
into equities and corporate bonds.
“Some of it will flow back into the banking system and at a time
when banks are facing some stresses in funding that can do some good as
well,” he said.
The Eurozone crisis has driven up the cost of funding for many UK
banks and companies and while UK banks are in a relatively strong
position they have already got sucked into funding difficulties.
Miles said the UK had lost between 10% and 15% of output over the
last four years, making the current decline one of the worst in the past
100 years and the near term growth outlook is grim.
The MPC member said the UK is “probably in for a period of very low
growth for the next few quarters.”
Miles also spoke to ITV News during his regional visit to the North
East and said he could not be confident if the Eurozone would survive
in its current form.
“I don’t think any of us can feel confident one way or another
about whether all the countries that are currently in the Eurozone will
still be in it,” Miles said.
–London newsroom: 4420 7 862 7491; email: drobinson@marketnews.com
[TOPICS: M$B$$$,M$$BE$]