The Bank of England must maintain a very expansionary monetary policy as the economy is still in a precarious situation, David Miles, a policymaker at the bank, said on Thursday.
Miles, who joined long-standing dove Adam Posen in voting for a larger boost to the economy than the majority of the policymakers earlier this month, also said inflation looked set to fall further, ending the squeeze on household incomes.
But Miles said the situation was changing month-to-month and declined to comment on his voting intentions come May when the current stimulus programme runs out.
There hasn't really been much of a recovery from what was one of the deepest recessions in the history of this country, Miles told television news channel CNBC.
I think where monetary policy needs to be right now is to maintain a very expansionary stance and try and boost demand as quickly as possible, he added.
The Bank of England's nine-member Monetary Policy Committee decided earlier this month to expand its quantitative easing asset purchases by another 50 billion pounds to support a fragile recovery after the economy shrank at the end of 2011.
Minutes from the policy meeting released on Wednesday showed that Miles had joined long-standing dove Adam Posen in voting for a 75 billion pound boost.
My view was that given the outlook it made sense to continue buying assets at the same pace that the Monetary Policy Committee had following the decision made in October, Miles told CNBC.
Miles' and Posen's votes reinvigorated prospects of yet another dose of stimulus when the current purchase programme runs out in May.
Many economists had judged that the momentum for more stimulus was fading after quarterly forecasts last week showed that the BoE expected inflation significantly closer to its 2 percent target in two years time than predicted in November. In addition, the economy is increasingly showing signs of recovery.
We will see were we are in May, Miles said when asked about his voting intentions. It is a situation that changes quite significantly from month to month.
However, Miles noted that inflation looked likely to fall further after dropping to 3.6 percent in January, down from the three-year peak at 5.2 percent in September.
It is likely that wage settlements will remain subdued and that is one of the reasons why it seems to me pretty likely that inflation will continue on the downward trajectory we have seen over the last few months, he said.
Falling inflation should also help hard-pressed households, finally ending the price squeeze on their disposable income, Miles said. That will really change the dynamics of consumer spending, he said.
However, consumer spending was unlikely to be fuelled by easy credit. I think it'll be foolish to expect the availability and cost of credit to households and companies to go back to relatively easy conditions we were in the years leading up to the crisis, Miles said.
(Reporting by Sven Egenter; Editing by Ramya Venugopal and Michael Perry)