LONDON (Reuters) - A smooth economic recovery is not yet assured and the Bank of England has not ruled out fresh stimulus measures, one of the central bank’s top policymakers said on Wednesday.
Martin Weale told the Telegraph newspaper he could “certainly envisage circumstances in which it would be sensible to undertake further asset purchases” in addition to the bank’s recent move to give forward guidance on interest rates.
The comments show a rare dovish side to Weale who went out on a limb to vote for higher rates in 2011 and was alone on the nine-strong Monetary Policy Committee to oppose the guidance plan proposed earlier this month by BoE chief Mark Carney.
Weale said labels such as ‘hawk’ and ‘dove’ were unhelpful and he had agreed with his colleagues on the committee earlier this summer that markets had got ahead of themselves in pricing in UK rate increases.
Circumstances that might warrant further easing included further shocks from the euro zone, fresh turmoil in emerging markets or a faltering domestic recovery, he said.
“As far as I am concerned, asset purchases remain a tool available to the committee if it feels the economy needs further support,” Weale said.
“I would hope the recovery is well entrenched, but anyone who thinks the future will unfold smoothly is not taking account of everything that’s happened in the past five years.”
Weale is the first Monetary Policy Committee member to speak publicly since Carney announced this month that the bank would not raise interest rates while unemployment remained above 7 percent.
The aim of this guidance was to give firms greater confidence to invest and consumers greater confidence to spend, but the inclusion of three get-out clauses led markets to question whether rates might rise sooner than the BoE envisaged.
Weale said his opposition to forward guidance was based on the need to shore up the bank’s inflation-fighting credibility after a prolonged period of above-target price rises.
“It is difficult for anyone not to be concerned about inflation given the recent history of the economy,” he said.
However, he admitted he was less concerned about wage growth now than he was a few years ago.
“Wage pressure has obviously come down quite a lot since the beginning of the crisis,” Weale said. “I am starting to think that we may get a revival in productivity growth without wages picking up immediately.”
Asked whether forward guidance had failed, Weale said the response that mattered was not that of market but that of consumers and businesses.
“One of the things I picked up last week was that since the forward guidance was announced, businesses have started to think they could feel more positive about investing,” Weale said.
Editing by Mohammad Zargham