–Adds Quotes, Detail From Full Interview Transcript
–Weale: “Comfortable” with Current Monetary Policy Stance
–Arguments in Favour Of Easing, Tightening “Finely Balanced”
LONDON – Britain faces a “significant” risk of a double-dip
recession, according to Martin Weale, the newest member of the Bank of
England’s Monetary Policy Committee.
Speaking to the Times newspaper, Weale said that he was unlikely to
call for rate changes soon and described himself as “comfortable” with
the current monetary policy stance, adding that the decision on whether
the next move should be tightening or easing was “finely balanced.”
Weale attended his first monetary policy meeting this month and
voted with Governor Mervyn King to hold both Bank Rate at 0.5% and its
quantitative easing programme at stg200 billion.
In his first interview since taking up the post, Weale said he
feared that the Bank’s central outlook for growth of around 2.8% in 2011
and 3.2% in 2012 could be too optimistic.
The threats to a sustained recovery are a renewed surge in
unemployment, further falls in house prices and a new banking crisis,
Weale added.
Weale noted that the Bank’s latest economic forecasts, published in
the August 11 Inflation Report, gave a one-in-ten outside chance of
contractions in output on a four quarter basis in both the near term and
towards the end of the forecast horizon.
“The forecast is putting a significant chance on the economy
contracting over a four-quarter period,” he said.
Weale also warned that fears over the credit worthiness of
sovereign debt could lead to a new crisis in the financial sector.
In the full transcript of the interview Weale said he was “very
comfortable” with the forecast in the BOE’s August Inflation Report
which shows inflation heading back below target in the second half of
the two year forecast horizon.
“I am very comfortable with the view that there is slack in the
economy, that unemployment is likely to rise further and, the way things
are developing, I find it hard to see that there are unusually
substantial upside risks to inflation so I feel very comfortable with
the inflation forecast in the Inflation Report,” Weale said.
Wage growth has been subdued and Weale said he wouldn’t be
“seriously alarmed” about high inflation outturns if wage growth did not
pick up.
“When I look at wages we certainly don’t see any evidence of wages
driving costs and prices in the economy as a whole,” he said.
“I wouldn’t be seriously alarmed unless there were evidence that
wage growth had started to pick up, because it seems rather unlikely
that you can have something driven by prices with nothing happening to
wages,” Weale added.
He also gave broad backing to the growth forecasts in the August
report, which were brought down from the well above consensus
projections in the May report.
“I am much more comfortable with the sort of growth that was in the
Inflation Report forecast, than I had been in the earlier ones,” Weale
said.
Policy Judgement Finely Balanced
Weale was asked if he believed there was more merit in loosening or
tightening policy. He said he was “comfortable” with the current policy,
with Bank Rate at 0.5%.
“I see the arguments as finely balanced – it is important to
remember… that even if interest rates go to three quarters of a
percent, monetary policy is still extremely slack by reference to any
historical experience,” Weale said.
“Am I in favour of greater loosening or tightening? The situation
is very expansionary and even with some slight tightening it will still
be very expansionary. For the time being I can see arguments for both
tightening and loosening and I am comfortable with the position the way
it is,” Weale said.
-London newsroom: 4420 7862 7491; email: wwilkes@marketnews.com
drobinson@marketnews.com
[TOPICS: M$B$$$,M$$BE$,MSSFX$,MT$$$$]