Speaking at Exeter chamber of commerce yesterday, Dale warned that too much easing could be as dangerous as not enough new money in the economy.
He said: “We do not have much experience of conducting monetary policy via asset purchases and there is a risk that their effects will be transmitted through the economy in ways we do not predict and do not want. For example, the substantial injections of liquidity might result in unwarranted increases in some asset prices that could prove costly to rectify.”
Barclays Capital analyst Simon Hayes says this the first time that a member of the Monetary Policy Committee has explicitly warned against too much quantitative easing.
He says: “Policymakers need to avoid creating a fresh bubble as the way out of the mess created by the bursting of the previous one. Earlier this week, MPC member Andrew Sentance suggested to us that monetary policy, in his view, had probably reached its nadir. We think Dale’s comments have a similar flavour, and in the absence of any further economic shocks, he seems unlikely to fall into line behind Governor King’s call for more policy loosening.”
This speech came after the MPC minutes revealed that the decision to hold easing at £175bn was unanimous this month. In August, three members of the MPC, excluding Dale but including King, unsuccessfully voted to increase the stimulus package to £200bn.
In his speech, Dale also argued against becoming too comfortable as the UK moves back into positive growth and out the recession.
He said: “Even if output does expand in the second half of this year, for many families and businesses it may still feel like we are in the economic doldrums. Unemployment is likely to continue rising for a period and firms will still face sluggish demand. The recovery may be slow and protracted.”