Thursday, September 29, 2011

Global weakness persistent, more QE possible-BoE's Dale

LONDON: The global economy faces the risk of a downward spiral and the Bank of England may have to consider further monetary stimulus if the situation worsens further, the BoE's chief economist said in a newspaper interview.

Growth was slowing in Britain's main trading partners and the confidence of the country's exporters has taken a knock, Spencer Dale told the Daily Mail in an interview published on Thursday.

"During the summer, we thought much of that was just a temporary soft patch, but that slowing now looks more persistent," Dale said.

The world faced a "rather nasty downward spiral", though the loss of confidence among consumers and businesses could exaggerate how bad things really are, he said.

Dale, who ditched his call for higher interest rates in August after a "material change" in the outlook for growth, said that the momentum had shifted towards a loosening of monetary policy.

"If things continue to deteriorate we may need to consider further monetary loosening," he said.

The Bank is now widely expected to engage in a fresh round of quantitative easing, and many economists see the BoE restarting its asset purchases as early as next week as fears of a renewed recession have increased due to the escalation of the crisis in the euro zone.

The minutes of the BoE's September showed that most of those policymakers who voted to leave the stock of asset purchases unchanged at 200 billion pounds already thought the case for more easing was "finely balanced".

But Dale said more quantitative easing was not a done deal as it was still unclear how quickly and how far inflation would fall back.

"That is why it is not just a no-brainer that we should do more QE," he said. "We need to think about the upside risks to inflation as well as the downside risks. If it were a no-brainer we would have done it already."

Dale said inflation was still likely to rise above 5 percent over the coming months, moving further away from the central bank's 2 percent target. ' Reuters

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