We have not written off QE, says Bank deputy governor

Paul Tucker was among six policymakers who voted against new purchases of government bonds (gilts) this month, pitting him against governor Mervyn King and two other officials who backed more bond buying.

The split raised expectations in financial markets the Bank would eventually pursue more stimulus.

“I remain open to doing more QE (quantitative easing), depending on the outlook for demand and inflation,” Mr Tucker said yesterday in an annual report to MPs.

Mr Tucker also said the impact of bonds bought in the past might give a greater boost to Britain’s economy this year, as the initial effectiveness had been hit by concern about the global economy at the time.

“The existing degree of monetary easing from QE is likely to gain more traction on spending than it had last autumn, given reduced tail risks from the international environment,” he said.

Britain’s economy showed no growth last year and contracted in the fourth quarter, despite the central bank having spent a total of £375bn on its bond-buying programme and with interest rates still at 0.5 per cent. When pressed by MPs about the possibility of more bond-buying, Mr Tucker said the Bank of England’s nine-strong Monetary Policy Committee had not written it off.

“Nobody on the committee thinks that QE has reached the end of the road and that it is not a useful instrument anymore.

“We stand prepared to do more, if we judge that necessary,” he said.

Government bond prices were unchanged by the comments of Mr Tucker and other Bank officials in parliament. The Bank has signalled it will tolerate inflation remaining above its 2 per cent target because it views the impact of a weaker pound and some price increases as temporary.

Mr Tucker said it was important not to give the impression the central bank was relaxing its commitment to bringing down inflation over the medium term.

“We are, in today’s language, (doing) flexible inflation targeting but without ever, ever taking our eye off medium-term inflation expectations.”

Mr Tucker was considered the frontrunner to take over as governor later this year until the surprise appointment in November of Mark Carney, currently head of the Bank of Canada. He is seen as being tolerant of inflation remaining above target.

Mr Tucker added his voice to suggestions from top policymakers that the pound may need to weaken more to help British exports.