LONDON (MNI) – After a week of gloomy economic data in the UK, Bank
of England Deputy Governor Charlie Bean tells The Sun that “there is
light at the end of the tunnel.”

Bean tells the paper that inflation will come down “in time for the
Olympics” – due to be held in London in the Summer of 2012.

Although Bean is mildly upbeat, he does have some concerns, noting
growth and confidence will be fragile.

“It’s a long tunnel, I won’t dispute that. And even next year, if
the squeeze in household income has stopped, it still won’t be pretty
strong growth. But it won’t be as bad as this year,” he said.

Bean also showed concern at events across the eurozone. He says the
eurozone members need to “find a way through their difficulties”, but
says it is in the UK’s interests for a successful outcome, saying: “if
it unravels badly, in a messy way, we inevitably are going to suffer,”
he said. He says: “Adam tends to take a more downbeat view of the UK
prospects than the rest of us.

Bean also said that the BOE research suggests that a second round
of QE would be effective.

“We have done a considerable amount of work on looking at the
benefits of QE. If we need more stimulus, another dollop of QE would be
effective, but it all hinges on the outlook,” he said.

“In August I didn’t think it was appropriate but all of us will
look at the indicators as they come in over the coming weeks and take a
view ahead of our next meeting in October,” he added.

Yesterday, external MPC member Martin Weale said that growth
prospects had even worsened in the last few weeks, according to an
interview with Reuters.

The MPC member – who was voting for a rate hike as recently as July
– said he would even back more stimulus now if CPI inflation were to be
forecast undershooting the 2% target substantially.

The August Inflation Report showed inflation at 1.7% in 2 years
time. Given the deterioration of the growth outlook no doubt the BOE is
already looking at an even lower estimate than that.

Weale told Reuters that he was confident that QE would work if the
MPC were to deploy it. In a recent speech he said that any further QE
should be targeted at the long end of the Gilt market.

On Tuesday MPC member Adam Posen has said that the BOE should
attack the longer-end of the gilt yield curve with an additional round
of stg50bln of asset purchases to be made over the next three months.

In a speech in Gloucestershire, Posen said that with the global
economic outlook worsening, the bank should “arguably” make even more
asset purchases, perhaps of around between Stg75 or 100bln.

The Bank of England Monetary Policy Committee produced no surprises
at its September meeting, leaving Bank Rate on hold at 0.5% and issuing
no policy statement.

But many analysts believe the MPC is edging closer to further asset
purchases as euro zone tensions become yet more acute and the latest
batch of domestic economic data give shape to the downside risks
delineated in its last set of minutes.

A Market News survey conducted prior to the meeting found a growing
number of analysts expecting that the BOE will – at some stage –
undertake further asset purchases, with 40% now expecting BOE QE2 as
against 27.5% in the August survey.

In its August minutes, the MPC focused on the risks posed primarily
by the euro zone debt crisis as well as those which might emerge if
there was to be a “significant further intensification of concerns”.

–London newsroom: 4420 7 862 7492; email:

[TOPICS: M$B$$$,M$$BE$]