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Mervyn King: There is a case for more QE
Sir Mervyn King, the Governor of the Bank of England, has said there is a case for further quantitative easing to support the UK's recovery.
Three MPC members voted to increase QE by £25bn to £400bn – including Sir Mervyn King Photo: PA
By Philip Aldrick, Economics Editor
6:29PM GMT 15 Mar 2013
9 Comments
"I don't think you should exaggerate the degree of optimism. What I see are signs of a recovery, and I think there is a case for supporting that through additional asset purchases," Sir Mervyn told ITV.
"One can take different views on it and some of my colleagues do. I do think that during the course of 2013 there are reasons to suppose that we will start to see a recovery."
Sir Mervyn was among a minority of Bank of England policymakers who voted in favour of more bond-buying by the bank at a meeting in February. The bank again voted against more quantitative easing in March. Details of that meeting are due to be released on Wednesday.
The news came after Sir Mervyn had earlier said that the recovery is now “in sight” and the pound has fallen far enough, sparking a rebound in sterling.
In some of his most upbeat comments since the crisis, Sir Mervyn claimed “there is momentum behind the recovery that’s coming” and that “good progress” has been made towards a new, sustainable economy in the last few years.
“I think that during the course of 2013 we will see the recovery come into sight,” he said. “If you take away what happened in the North Sea oil production and in construction, the UK economy last year grew by 1.5pc.” Overall, the economy grew by 0.2pc in 2012, according to the latest official data, and is expected to grow 1.2pc this year.
He also retreated from his earlier attempt to talk down the pound. Having said last year that the 8pc appreciation in sterling “was not a welcome development”, he cheered its recent decline to a two-and-a-half year low and suggested the pound had fallen far enough.
“We’re certainly not looking to push sterling down,” he said. “We are moving to a properly valued exchange rate. I think we’re probably there.”
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The pound was trading up three-quarters of a cent at $1.5162 at 11am. Graph: Bloomberg
Sterling rose for a third straight day against the dollar, edging away from a recent 33-month low. Although some traders said the rebound could be short-lived as the economy struggles in contrast to the United States.
"It’s hard to tell whether Sir Mervyn is just having his own Nigel Lawson moment, but if a recovery is on its way Sir Mervyn must have excellent eyesight, since most of his fellow Britons aren’t seeing any improvement," said Chris Beauchamp, market analyst at IG Index.
The Governor also revealed that he has held discussions with the Chancellor and the Prime Minister about their economic strategy, when he has pressed for more supply side reforms.
He refused to be drawn on his recommendations but “supply side” could be short-hand for improving the economy’s credit supply. Last week, the Prime Minister hinted that the Bank would get new tools to boost growth in the Budget, saying he backed “monetary activism” and that “the Bank must support the recovery”.
The Treasury is now widely expected to extend the Bank’s Funding for Lending cheap credit scheme or give it new powers to help stimulate the economy, possibly alongside an altered inflation target. “Supply side” is also a term often used in reference to tax cuts and deregulation.
“I’ve had conversations with the Chancellor and the PM about the strategy,” Sir Mervyn told ITV News on a trip to the West Midlands. “We talked privately about the various things that could be done... I’m confident there are things the UK can do and I’m very confident the Government understands that.”
Sir Mervyn’s comments came despite his recently voting to increase quantitative easing by £25bn to £400bn, and amid weak economic data for the last two months that have rekindled fears of a triple dip recession.
The change in tone has come shortly before Sir Mervyn’s tenure as Governor ends at the end of June. As recently as November, the Governor said the UK “may be in for a period of persistently low growth” thanks to the “unappealing combination of a subdued recovery, with inflation remaining above target for a while”.
On Thursday he was instead claiming that a vital rebalancing of the economy from consumption to exports was in train. “We’re making good progress towards that re-balancing,” he said. “Policies are in place to achieve it. We are on track to achieve it. Recovery is in sight.”
What’s held the recovery back has been “[flagging] demand for exports and the enormous uncertainty generated by what’s happening in the euro area”, he argued.
Sir Mervyn King, the Governor of the Bank of England, has said there is a case for further quantitative easing to support the UK's recovery.
Three MPC members voted to increase QE by £25bn to £400bn – including Sir Mervyn King Photo: PA By Philip Aldrick, Economics Editor
6:29PM GMT 15 Mar 2013
9 Comments "I don't think you should exaggerate the degree of optimism. What I see are signs of a recovery, and I think there is a case for supporting that through additional asset purchases," Sir Mervyn told ITV.
"One can take different views on it and some of my colleagues do. I do think that during the course of 2013 there are reasons to suppose that we will start to see a recovery."
Sir Mervyn was among a minority of Bank of England policymakers who voted in favour of more bond-buying by the bank at a meeting in February. The bank again voted against more quantitative easing in March. Details of that meeting are due to be released on Wednesday.
The news came after Sir Mervyn had earlier said that the recovery is now “in sight” and the pound has fallen far enough, sparking a rebound in sterling.
In some of his most upbeat comments since the crisis, Sir Mervyn claimed “there is momentum behind the recovery that’s coming” and that “good progress” has been made towards a new, sustainable economy in the last few years.
“I think that during the course of 2013 we will see the recovery come into sight,” he said. “If you take away what happened in the North Sea oil production and in construction, the UK economy last year grew by 1.5pc.” Overall, the economy grew by 0.2pc in 2012, according to the latest official data, and is expected to grow 1.2pc this year.
He also retreated from his earlier attempt to talk down the pound. Having said last year that the 8pc appreciation in sterling “was not a welcome development”, he cheered its recent decline to a two-and-a-half year low and suggested the pound had fallen far enough.
“We’re certainly not looking to push sterling down,” he said. “We are moving to a properly valued exchange rate. I think we’re probably there.”
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07 Mar 2013
The pound was trading up three-quarters of a cent at $1.5162 at 11am. Graph: Bloomberg
Sterling rose for a third straight day against the dollar, edging away from a recent 33-month low. Although some traders said the rebound could be short-lived as the economy struggles in contrast to the United States.
"It’s hard to tell whether Sir Mervyn is just having his own Nigel Lawson moment, but if a recovery is on its way Sir Mervyn must have excellent eyesight, since most of his fellow Britons aren’t seeing any improvement," said Chris Beauchamp, market analyst at IG Index.
The Governor also revealed that he has held discussions with the Chancellor and the Prime Minister about their economic strategy, when he has pressed for more supply side reforms.
He refused to be drawn on his recommendations but “supply side” could be short-hand for improving the economy’s credit supply. Last week, the Prime Minister hinted that the Bank would get new tools to boost growth in the Budget, saying he backed “monetary activism” and that “the Bank must support the recovery”.
The Treasury is now widely expected to extend the Bank’s Funding for Lending cheap credit scheme or give it new powers to help stimulate the economy, possibly alongside an altered inflation target. “Supply side” is also a term often used in reference to tax cuts and deregulation.
“I’ve had conversations with the Chancellor and the PM about the strategy,” Sir Mervyn told ITV News on a trip to the West Midlands. “We talked privately about the various things that could be done... I’m confident there are things the UK can do and I’m very confident the Government understands that.”
Sir Mervyn’s comments came despite his recently voting to increase quantitative easing by £25bn to £400bn, and amid weak economic data for the last two months that have rekindled fears of a triple dip recession.
The change in tone has come shortly before Sir Mervyn’s tenure as Governor ends at the end of June. As recently as November, the Governor said the UK “may be in for a period of persistently low growth” thanks to the “unappealing combination of a subdued recovery, with inflation remaining above target for a while”.
On Thursday he was instead claiming that a vital rebalancing of the economy from consumption to exports was in train. “We’re making good progress towards that re-balancing,” he said. “Policies are in place to achieve it. We are on track to achieve it. Recovery is in sight.”
What’s held the recovery back has been “[flagging] demand for exports and the enormous uncertainty generated by what’s happening in the euro area”, he argued.
Spencer Dale, the Bank of England's chief economist Photo: BANK OF ENGLAND
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