–Adds Detail To Version Transmitted At 0945 GMT
–EU Policymakers Looking To Get A Year of Two’s Breathing Space

LONDON (MNI) – Bank of England Governor Mervyn King has said that
the BOE’s Monetary Policy Committee almost sanctioned quantitative
easing at its September meeting but instead decided to wait-and-see if
markets calmed down.

King also told parliament that the latest round of quantitative
easing is designed to boost demand, spending output and inflation.

“Any monetary policy easing is going to have the effect of
expanding demand, spending, output and ultimately inflation. That is was
what monetary policy easing is designed to do,” King said.

King said that he was concerned about persistently high inflation,
but that he thought that it was a necessary step in the economic
rebalancing process.

CPI rose to 5.2% in September, hitting a three year high.

“It’s the same inflation rate as in 2008 … but I certainly accept
that what’s happening in the economy now is a very large squeeze on
incomes. Real take home pay has fallen by more in the last two years
than any time in living memory,” he said.

“They are the consequences of higher value added tax, higher food
prices and a fall in the real exchange rate which was necessary for us
to be able to rebalance our economy a way that was vital after a period
of a relatively overvalued exchange rate,” King added.

“When we undertook the next round of asset purchases we did it
because we thought that there were real risks that inflation looking
ahead would fall below the (2%) target, we wanted to offset that,” he
said.

King told the Treasury Select Committee that the minutes of MPC’s
meeting showed “we came very close to voting for further asset purchases
in September.”

“We did not take the step forward … because at that September
meeting we were very conscious of there being significant news in
August, particularly in financial markets and it could have been that
that volatility worsened over the next month,” he said.

BOE Deputy Governor Charles Bean, appearing alongside King, was
asked what impact the stg75 billion QE the Monetary Policy Committee
sanctioned at its October meeting would have on growth, inflation and
jobs.

He said it could add some 0.5 percentage point to growth and
inflation, but the impact on employment was uncertain, as the labour
market had behaved in surprising ways throughout the financial crisis
and its aftermath.

Speaking later in the session, King said that the MPC’s decision to
reignite its QE programme was a result of a marked worsening in the
European sovereign debt crisis during August.

“We’re not looking to domestic consumption to drive the recovery,
we’re looking to net exports and the world economy had picked up
encouragingly then the situation changed,” he said.

King also said that he didn’t expect a comprehensive solution to
the euro zone crisis to emerge any time soon.

“The underlying problems haven’t changed at all and they won’t
change. The aim of the measures to be introduced over the next few days
(at EU level) is to create a year, or possibly two years’, breathing
space but the underlying problems haven’t been resolved,” King said.

“Whatever view you held at the beginning of the summer, you should
hold a somewhat different view at the end of the summer” he added.

TSC chairman Andrew Tyrie summoned King and BOE Deputy Governor
Charles Bean following the Monetary Policy Committee’s decision to
sanction stg75 billion of further QE at its October meeting.

–London newsroom 0044 20 7862 7491; email:
drobinson@marketnews.com/wwilkes@marketnews.com

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