Economy set to get worse, warns MPC member

In his first public comments since the Bank’s Monetary Policy Committee surprised markets by launching a second round of quantitative easing last week, Mr Dale said that Britain was suffering one of the worst ever periods of financial turmoil.

The economy has largely stagnated for the past 12 months, and Mr Dale said the deepening eurozone debt crisis had increased the downside risks to inflation further down the line.

Asked if the £75bn of gilt purchases over the next four months that the MPC approved last week would be enough to help the economy turn the corner, he told Reuters: “I think it will depend critically on what happens in our economy but even more importantly in the rest of the world.

“The main reason why our economic outlook has deteriorated very substantially over the past few months is what’s happening in the rest of the world, and therefore, how we will set the stance of policy going forward.”

Mr Dale said the failure of eurozone leaders to tackle Greece’s debt crisis had been a major factor behind a downward spiral in global economic confidence, and that the Bank would be keeping a close eye on future developments.

His downbeat view of the economy was reinforced by official data published after the interview showing unemployment rose to a 17-year high in the three months to August.

And the MPC’s arch-dove, Adam Posen, told Bloomberg TV that he “would be a fool not to be quite worried” about the potential impact on British banks from the eurozone debt crisis, echoing Mr Dale’s line that the MPC was open to further asset purchases if the economy worsened.

Until August this year, Mr Dale had been in a minority of MPC members who supported higher interest rates. He declined to confirm if he had backed last week’s expansion in QE, saying this would become clear in the MPC minutes next week.

Dr Andrew Sentance, a former member of the Monetary Policy Committee and well-known hawk, is due to visit Yorkshire next week to take part in a business event organised by Marketing Leeds.

Speaking ahead of his trip, he said: “With the public sector reining in borrowing, the private sector needs to be the key engine of growth in the UK and other major economies.

“Business confidence is fragile and consumers are being squeezed by high inflation. Short-term growth prospects are weak.

“With the right policies, I believe we can create the conditions for a sustainable recovery in the UK economy after the traumas of the financial crisis.”