–Adds Detail, Quotes To Version Transmitted At 1113 GMT

LONDON (MNI) – Bank of England Monetary Policy Committee member
David Miles said he was much more likely to vote for an extension of
quantitative easing if the current downside risks, including those from
the eurozone crisis, materialized.

Miles, who has been a persistent supporter of unchanged policy, was
asked by a member of the Treasury Select Committee whether he was one of
the MPC members cited in the latest minutes who believes further QE
could might become warranted if downside risks crystalise. He clearly
endorsed this position.

Miles said there were a whole range of risks to demand and “one of
the big ones … is what is happening in the peripheral area of the
Eurozone. Who knows how that will play out ?” he said.

“Presumably there’s a possibility of (that) playing out badly and
having a negative knock-on impact on demand in the UK,” Miles said.

He added “If that were to happen, or indeed some of the other risks
to demand output in the UK were to materialise, that would make it much
more likely that I would vote for asset purchases because we would want
to offset that … If we didn’t do that the path of likely future
inflation, I think, would move down, because unemployment would be
greater …. and I think it would be appropriate to respond to that by
more expansion in monetary policy,” Miles said.

“That’s not what I think the most likely outcome is, but it’s
certainly a possibility,” he said.

Asked about other adverse possible adverse shocks, Miles cited
fragile consumer confidence and their concerns over the economic
outlook.

He believes, however, the most likely path for the UK economy is
not for it to take a further downturn.

“My best guess, the thing I think is most likely, is that we will
start growing from here. That unemployment won’t rise significantly, we
may see (it) more or less ultimately, come down a bit.” he said.

“It’s perfectly reasonable for people to worry about much worse
outcomes than that. And that has the potential to be self-fulfilling, if
people really become even more nervous about the future they might try
to spend even less, the household saving ratio rises, the level of
demand falls and what is basically a bad patch turns into a more
extended period of weak activity,” Miles said.

Miles said the impact of commodity prices, which have risen sharply
and then corrected to some extent, could prove to be an upside or
downside shock.

“It could go either way. Commodity prices … are beyond our
control (and) could have substantial long-term impact, and who knows how
that might play out ?” he said.

“Who knows where food prices may be three or four months down the
road. That has the potential to have a big impact, both on near-term
inflation but also on disposable income and demand,” he said.

–London newsroom: 4420 7862 7491; email: drobinson@marketnews.com
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