Tags: BOE | Policymaker | UK | Recession

BOE Policymaker: UK Could Slip Back Into Recession

Tuesday, 24 Aug 2010 07:39 AM

Britain faces the risk of sliding back into recession and the central bank's growth forecast for this year and next may be too optimistic, new Bank of England policymaker Martin Weale said in an interview on Tuesday.

"I think it would be foolish to say that there's no risk of that," Weale told the Times newspaper, noting that the BoE's latest economic forecasts put "a significant chance on the economy contracting over a four-quarter period".

Weale, who voted with the majority to keep monetary policy ultra loose in his first Monetary Policy Committee meeting this month, also said he did not think there was a substantial risk of inflation spiraling out of control.

"I find it easier to see why growth should come in a bit below (the forecast) than I do to see why inflation should come in above the forecast," Weale said.

Britain’s economy emerged from an 18-month recession at the end of 2009 and has surprised with robust growth since then.

However, tight credit, government spending cuts and weak consumer confidence have been cited as serious risks to the recovery.

Weale's comments, which helped push sterling to a one-month low against the dollar, suggest a dovish streak, although the economist said he could see arguments for "both tightening and loosening" monetary policy.

This month, the MPC voted 8-1 to keep interest rates at a record low of 0.5 percent and to maintain the central bank's 200 billion pound asset purchase program. Andrew Sentance voted for a 25 basis point rise in rates.

The Committee discussed arguments for tightening and loosening policy before voting in favor of the freeze, with Sentance arguing that there was a risk that recent, surprisingly strong inflation could become entrenched.

Weale played down that risk. Most of the MPC agree that one-off factors have driven up inflation this year and argue price pressures will wane over the next year or so.

"I am very comfortable with the view that there is slack in the economy, that unemployment is likely to rise further, and the way things are developing I find it hard to see that there are unusually substantial risks to inflation," he said.

He said dangers ahead include a renewed hike in unemployment as well as declining house prices and another banking crisis.

"That could be a sovereign debt crisis or it could be a new liquidity crisis in the private sector," he told the paper.

"The whole of the lesson of not only the recent crisis, but earlier ones, is that you have periods of calm and then things bubble up again," he said.

Weale said tough fiscal tightening is removing demand from the economy, though it is not a likely trigger for recession.

"Another factor here is that consumer demand may well be rather less buoyant than we have been used to," Weale said.

"There is a risk that consumer saving will be quite a lot higher than people had hoped and there is a risk that investment may pick up less than people hope and find that you do have the problem that exports haven't been doing as well as one might hoped."

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Britain faces the risk of sliding back into recession and the central bank's growth forecast for this year and next may be too optimistic, new Bank of England policymaker Martin Weale said in an interview on Tuesday. I think it would be foolish to say that there's no risk...
BOE,Policymaker,UK,Recession
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2010-39-24
Tuesday, 24 Aug 2010 07:39 AM
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