A worker wearing a protective face mask walks past the Bank of England in the City of London, Britain, on Aug. 6, 2020.TOBY MELVILLE/Reuters
A Bank of England rate setter said on Friday it was “quite likely” that Britain’s pandemic-hit economy would need more stimulus to offset what may be years of social distancing and the growing risk of post-Brexit trade barriers.
Michael Saunders’ comments were the clearest signal yet from senior BoE officials that they will probably add to their already unprecedented emergency support measures in the coming months.
“I consider it quite likely that additional monetary easing will be appropriate in order to achieve a sustained return of inflation to the 2-per-cent target,” Mr. Saunders said in an online speech.
The Bank of England has cut interest rates to a record low of 0.1 per cent and has ramped up its bond-buying program by £300-billion ($520-billion) since the COVID-19 pandemic struck.
Also, Chancellor of the Exchequer Rishi Sunak has sought to soften the crisis with a surge in public spending, pushing debt to its highest share of economic output since the 1960s.
After shrinking by a record 20 per cent in the April-June period, the economy has shown some signs of recovery.
But Mr. Saunders said that was the result of a “benign window” -- the combination of the government spending surge and the relaxation of lockdown measures.
“This window may now be closing,” he said.
Many economists polled by Reuters expect the BoE to announce a further expansion of its bond-buying in November.
Mr. Saunders said more quantitative easing was “clearly an option” for a future stimulus push, while there were still questions about taking interest rates below zero for the first time, something the BoE has said is now an option.
On Wednesday, BoE Deputy Governor Dave Ramsden and another rate setter, Gertjan Vlieghe, also warned the economy could suffer more damage from the coronavirus crisis than spelt out by the central bank last month.
Mr. Saunders said the labour market was “very worrying” and overall economic growth was likely to disappoint against the BoE’s forecasts published only last month.
“It is possible that, both in the U.K. and globally, we will be living with COVID for much if not all of the three-year forecast period,” he said, adding there was no automatic time limit for the BoE’s huge stimulus program.
There were big risks to the economy not only from the enactment of local lockdowns, but also from fears that they might be imposed without the safety net of the national-level support measures introduced by the government.
Mr. Saunders also warned that the end of Britain’s post-Brexit transition was likely to be less smooth than the BoE had assumed last month.
“Risks probably lie on the side of a thinner trade deal [with the European Union], a less-smooth transition, or more persistent Brexit-related uncertainty,” he said.
He said it was “highly questionable” that companies had the cash buffers they needed to handle the conditions they now faced.
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