The three-way split among monetary policymakers' last meeting should be no surprise given the economy is at a turning point, Bank of England Governor Mervyn King said on Tuesday. Skip related content
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The central bank's Monetary Policy Committee voted to increase its asset-buying or quantitative easing programme by 25 billion pounds in November, but minutes of its meeting published last week showed one member had wanted a bigger increase and another had wanted no rise at all.
Speaking to the parliament's Treasury Committee, King denied one legislator's suggestion that the split indicated policymakers did not know what they were doing.
"It's not surprising when you're at a turning point that you get differences of view," King said.
He and others stressed there was still considerable uncertainty about the economic outlook and that it would still take a long time for the level of output to return to more normal levels.
The recession may have cost as much as 10 percent of economic output, King said.
Financial markets showed little reaction as most analysts are convinced policy is now on hold and King indicated much the same in later testimony to the upper house of parliament that February was the most likely time for any change.
"We have a programme of asset purchases which we announced as a programme for three months so I think there's some presumption that we will take this programme to the end of January and think again at the Feb inflation report and MPC meeting.
"We can always change our mind and do something earlier if we wish to do that. Certainly in February we'll have another decision to make and we'll make it at that point with all the information available to hand then."
COMING TO AN END
MPC member Adam Posen also indicated the Bank thinks the 200 billion pound QE programme -- the Bank's way of pumping money into the system to boost the economy -- may soon be coming to an end.
Asked if he still favoured the Bank buying more private-sector assets instead of just concentrating on gilts, Posen said he hoped the question was "moot."
"Because the hope is that we are coming to the end of the large scale quantitative easing exercise," he said.
His colleague Andrew Sentance said the MPC had been right to slow the rate of asset purchases. "Evidence of stabilisation and recovery has begun to emerge," he said.
King said that even though the central bank was forecasting buoyant growth in the coming quarters, it was important to realise the absolute level of economic output was well below that before the crisis, with a risk that unemployment could yet rise significantly as companies had deferred layoffs.
"For the foreseeable future the level of total GDP is well below, about 10 percent below, the level we would have expected it to reach had we continued to grow in line with trend before the crisis hit in 2007," he said.
King repeated his line that there needed to be a credible plan to reduce the budget deficit but that this should depend on the outlook for the economy.
Asked if there was a risk to the UK's credit rating, he said: "I don't think there's any immediate risk, but the longer there isn't a credible plan that sets out what action will be taken (on reducing the deficit), the more that is a risk."
Perhaps his greatest concern for now, however, was that the global imbalances in the world economy would return as recovery came about.
"I think the point that really does trouble me is the speed at which the imbalances in the world economy are likely to adjust. As the level of output in the world starts to grow again, my concern is that the imbalances will start to emerge again," he said.
(Additional reporting by Fiona Shaikh and Christina Fincher, Editing by Ron Askew)
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