London (MNI) – There is still time for the economy to be allowed to
recover before policy tightening needs to begin, Bank of England
Executive Director Markets Paul Fisher said in comments published
Tuesday.
Fisher set out a downbeat view of the economy, saying he was not
certain the recovery would continue of its own accord. He highlighted
the pressure on household real incomes, and the downside risks to growth
in the near term.
Fisher voted to keep policy on hold in May, and he said it was even
possible further montary easing could be justified.
“I believe there remains time to allow the economy to recover
before the eventual tightening begins,” Fisher said.
“I am not trying to give any hints today as to exactly when that
(tightening) will be. I honestly don’t know,” he said.
Fisher said there are “immediate downside risks to the growth
outlook. Although my central expectation is that the recent weakness
will just be a soft patch, I do worry about a more prolonged weakness in
demand, and in particular, consumer spending.”
“That could knock the recovery off course for a sustained period,
shifting the balance of risks around medium-term inflation to the
downside. With that risk in mind, putting up Bank Rate could be exactly
the wrong thing to do at this precise moment,” he said.
He warned that if a hike in Bank Rate “further damaged consumer
confidence then it could be the marginal factor that makes a soft patch
turn into something worse.”
Fisher said the risks around the 2% inflation target were broadly
balanced in the medium term.
He was particularly gloomy about the outlook for domestic
consumption.
“I wouldn’t be surprised if there was only slow growth in consumer
spending over the next year or so. The risks around that are probably
skewed to the downside,” Fisher said.
–London bureau: +4420 7634 1624; email: drobinson@marketnews.com
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