* BoE should buy more debt if UK growth stays weak - OECD
* OECD's Gurria sees no need to change deficit-cutting plan
* OECD sees UK GDP +0.9 pct in 2013, unchanged from Nov
By David Milliken and William Schomberg
LONDON, Feb 6 The Bank of England should be
ready to buy more bonds if Britain's economy remains weak, while
the government does not need to rethink its deficit-reduction
plan, the OECD think-tank said on Wednesday.
Instead, monetary policy should be the main tool to help the
economy past short-term weakness, the Paris-based Organisation
for Economic Cooperation and Development said, in contrast to
the view of the International Monetary Fund.
After two years of stagnation and the risk of an imminent
return to recession, there have been renewed calls from some
economists and opposition politicians for Britain's
Conservative-led government to rein in its flagship austerity
Last month the chief economist of the IMF said finance
minister George Osborne should look at scrapping some planned
spending cuts due to persistent economic gloom.
The OECD shares the IMF's downbeat outlook, forecasting on
Wednesday that Britain's economy will grow just 0.9 percent this
year after shrinking by 0.1 percent in 2012.
But the OECD's secretary-general, Angel Gurria, said that
for now the Bank of England should be the main source of extra
support for the British economy.
"The UK has its own currency, its own central bank and its
own monetary policy. Therefore it has the capacity to go, if you
will, the extra mile," he said at a news conference hosted by
Osborne at Britain's finance ministry.
"Overall, in the current economic situation, further
expansion of the asset purchase programme would be warranted if
the economy stays weak," the OECD added in a survey of the
The OECD's call may fall on deaf ears at the Bank of
Several of its top policymakers have questioned the
effectiveness of another round of government bond buying, known
as quantitative easing (QE) and only one has called for more.
The Bank of England has so far spent 375 billion pounds
($588 billion) on British government debt as it tries to get the
UK economy going again. The economy has suffered two recessions
in the last four years and could be on the verge of another one.
Economists expect no change in policy when the Bank of
England concludes a two-day meeting on Thursday.
Its direction could change later this year when its next
governor, Mark Carney, currently head of the Bank of Canada,
takes over on July 1. He is due to address British lawmakers on
In its report, the OECD said alternatives to buying more
government bonds, such as a further cut in interest rates by the
Bank of England below their historically low level of 0.5
percent or buying private securities, "do not appear to have
clear advantages over expanding QE".
The OECD said those risks inherent in bond-buying by central
banks were limited in Britain due to the government's
"determined action" to cut the budget deficit.
The OECD said the focus on cutting the deficit was
appropriate, though monetary policy should be "flexible" if
growth proved weaker than expected.
Gurria said he was not suggesting that Osborne rethink his
deficit reduction plan. Insteadm the OECD only wanted so-called
"automatic stabilisers" - the higher social spending and lower
tax bills that naturally occur in a downturn - to be allowed to
This is already largely built into Osborne's fiscal targets,
which are largely calculated on a cyclically adjusted basis.
"It is not about changing the plan. It is about using the
flexibility within the existing plan," Gurria said. "The policy
response in the case of the UK has been the appropriate one and
it is being recognised and rewarded by the markets."