There is a strong case for further quantitative easing, according to Martin Weale, a member of the Monetary Policy Committee.
In his annual report to the Treasury Select Committee, Weale says that if economic prospects remain largely unchanged, the Bank of England’s asset purchase programme could well be extended in February when the current programme is completed.
He says: “If neither economic prospects improve sharply nor inflation prospects worsen, relative to the way they appear at the moment, then I think there will be a strong case for extending the asset purchase scheme when the current purchases of £75bn have been completed and when it is clear that inflation is falling as we have forecast.”
Weale also says that little economic growth can be expected either in Q4 this year or in the first half of next year.
He adds: “Beyond this, while the outlook is as always uncertain, there is no reason to expect growth at a rate below the historical trend. In the long term growth may resume at its trend rate or perhaps somewhat faster.”
Mervyn King, governor of the Bank, says in his report to the TSC that events in the eurozone in recent months have threatened the UK recovery and as a result, the level of output looks likely to be broadly flat over the next six months.
He says: “The outlook for inflation in the medium term is correspondingly weaker, and there is a significant risk that it will undershoot the MPC’s target.”