LONDON, Sept 24 A top Bank of England
policymaker said critics of the central bank's new forward
guidance strategy were resorting to "Alice in Wonderland" logic
by saying it had been a failure.
David Miles also said he was more confident about Britain's
recovery prospects than at any time since he joined the Bank in
2009, but that people should not expect a quick return to more
normal monetary policy given how weak the economy has been.
Last month, the BoE announced a new strategy of linking its
record low interest rates to a fall in unemployment in order to
guide Britain back to growth.
The announcement coincided with signs that the long-awaited
recovery was picking up speed. That led to a rise in interest
rates and sterling and prompted criticism from some economists
and media that the guidance was a failure because the BoE might
have to raise rates before late 2016, as suggested by the plan.
Miles said the tightening of financial conditions since
August, while not helpful, was "benign" because it reflected
Britain's better economic prospects, and he rejected the
criticism as a "rather Alice in Wonderland, upside down logic".
"It implies that somehow the MPC find unwelcome signs of a
recovery in the economy. I can assure you that we do not!" he
said in a speech to be delivered at Northumbria University in
Newcastle, northeastern England.
He said the market's apparent view that unemployment might
fall to the BoE's threshold level of 7 percent in the next 18
months was "rather sooner than I think is likely".
Miles was the most persistent proponent on the Bank's
Monetary Policy Committee for more bond-buying stimulus. But he
has not voted for more quantitative easing since July as the
Bank launched its guidance plan and signs of a recovery grew.
He said in his speech that there was a risk that Britain's
recovery might not prove durable and, in any case, it still had
a long way to go before monetary policy could get back to normal
given how weak the economy had been since the financial crisis.
Miles said guidance was helpful at this stage because it
reduced the risk of a "still somewhat embryonic" recovery being
smothered by expectations of imminent monetary policy
He also said he thought it was plausible that Britain could
have economic growth back at average levels or stronger for the
next six to eight quarters while unemployment did not fall much.