Bank ready to extend QE if needed. LONDON (Reuters) – The full impact of the Bank of England’s asset purchase programme has yet to feed through to the economy but further stimulus may still be needed, Bank chief economist Spencer Dale said on Friday.
Sticking closely to previous comments by Bank Governor Mervyn King, Dale said the bank’s decision to halt its quantitative easing scheme on February 4 did not necessarily mean the policy had come to an end.
“The Committee stands ready to make further asset purchases should the outlook warrant them,” Dale told a conference in Cambridge. “A pause in monetary loosening does not necessarily mean that loosening has come to an end. It will all depend on how the outlook for inflation evolves.”
Britain’s central bank began buying bonds with newly created money in March 2009 in an unprecedented attempt to pull the economy out of a deep recession. It paused the programme last month having bought almost 200 billion pounds of gilts, more than a quarter of the entire market.
Although the economy returned to growth at the end of last year, the recovery remains fragile.
Dale said there were many signs the quantitative easing programme had been effective — asset prices have increased, companies have had easier access to debt and equity markets and confidence has recovered — but there was “still a long way to go.”
Judging when to start tightening monetary policy would be difficult, Dale said, and could be done via a mixture of raising interest rates and selling assets back to the market “at any time, in any order”‘
Dale said it was too early to make a final judgement on QE’s effectiveness, since much of the impact on spending and inflation had yet to come through. But he expressed satisfaction with the response so far.
Studies suggest the Bank’s purchases had reduced gilt yields by around 100 basis points, and corporate bond yields by more than 400 basis points.
“These movements have been very beneficial for the economy and, when starting our asset purchases a year ago, I would have been more than willing to have settled for such an outcome,” he said.