–Says Cut To Zero Or 0.25% Would Harm Position Of Certain Banks
–Rise In Sterling A Concern – Economy Has Lost Some Competitiveness
–Says No ‘Practical’ Limit To QE At Present; Is ‘Theoretical’ Limit
–Inflation ‘Not Major Problem’ – But Paying Careful Attention

LONDON (MNI) – Cutting Bank Rate would generate ‘perverse effects’
and weaken the financial position of certain banks, Bank of England
Monetary Policy Committee Member Martin Weale said today.

In an interview in French newspaper, Les Echos, Weale – who is
described as a member of the ‘hawkish camp” by the paper – also says
that the rise in sterling’s exchange rate was a concern.

“Lowering short-term rates (Bank Rate is currently 0.5%) to zero or
to 0.25% might generate perverse effects, such as weakening the
financial position of certain banks,” Weale said.

The comments put Weale in line with Governor Mervyn King who said
at a recent press conference that cutting Bank Rate could undermine the
position of certain building societies and would not, in any case, have
a major stimulus effect.

While there was a debate going on in the MPC about increasing its
quantitative easing programme further, Weale said:

“At this stage, my personal opinion is it’s not necessary to
increase the size of the asset purchase programme.”

Weale said that while there was a “theoretical limit to the size
of such a (QE) programme” – “there was “no practical limit at the
present moment”.

While inflation is “not a major problem” for Weale, he admits
that “we are paying careful attention to it” and he notes the
rise in petrol price and also food price pressures after the US drought.

The euro zone remains the number one risk for the UK economy, Weale
says.

The problems of the euro zone are an important source of tension
for the UK economy and the rise in sterling against the euro is a worry
for him:

“The rise in sterling is a concern for me. Because of that the
economy has lost some of its competitiveness,” Weale said.

On the Olympic effect, Weale made clear that short-term demand in
the UK would benefit from factors such as ticket purchases and
television rights, but said it was less clear if activity in the rest of
the economy had suffered or not as a result of people taking leave,
leaving the centre of London deserted.

Weale said no single factor could expalin the UK’s productivity
puzzle – an ongoing source of preoccupation for many on the MPC. Weale
noted one phenomenon that has already been cited anecdotally and in
surveys – namely that many workers who had changed jobs during the
crisis had opted for employment which was less productive than
previously.

–London Bureau +20 7862 7499; dthomas@marketnews.com

[TOPICS: MT$$$$,M$X$$$,M$$FI$,M$$BE$]