Britain is at risk of slipping into recession, a Bank of England policymaker said on Tuesday, with a fellow ratesetter suggesting the bank may opt to counter this winter's economic gloom with more monetary stimulus.
Clearly things have slowed a lot since earlier this year and there is a material chance of a technical recession, Ben Broadbent told the Evening Standard according to a version of an interview on the paper's website.
Charles Bean said the central bank may opt for further asset purchases in February when an increase to its bond buying programme agreed in October ends, citing the danger of inflation falling too far below the Bank's target.
Both central bankers reiterated the view that a sharp drop in price pressure next year should help consumers.
In a sign that lower prices have the power to boost consumer spending, seen as key to Britain's growth, a survey by the Confederation of British Industry showed that British retail sales unexpectedly rose at their fastest pace since May in December as retailers discounted heavily.
Like his eight fellow policymakers, Broadbent voted in October to increase the Bank's asset purchases by 75 billion pounds to 275 billion to support an economy hit by weak consumer demand and the raging euro zone crisis.
Bank chief economist Spencer Dale wrote in the central bank's latest quarterly bulletin published on Monday that the weakness in household consumption was a key reason why the pace of the recovery has been disappointing.
Broadbent said strains on consumers would ease next year.
We have had a couple of really big hits to household income over the last two years, he told the Evening Standard. Between them, VAT (the increase in value-added tax) and commodity prices might have taken 2.5 percent out of household incomes, and we're not going to have those again.
He chimed with Bean, who said in a radio interview that inflation should come down sharply from its current level of 4.8 percent.
Domestically generated inflation was very low, Bean said. The main risk was still inflation falling too far, rather than staying too high, given knock-on effect on Britain from the euro zone debt crisis.
Asked about the need for more monetary stimulus, Bean said the central bank would take stock in February, when the bank's next inflation and growth forecasts are due.
A slew of bad news from the economy and the failure by European governments to resolve the euro crisis have stoked fears that Britain is on the brink of recession, though recent numbers from the country's retailers suggest that many consumers splashed out on a nice Christmas.
Analysts have stressed the role of discounting in boosting the CBI retail sales figures.
Aggressive discounting by shops is having the desired impact, but that may come at the expense of a weak January, said David Tinsley, economist at BNP Paribas.
Indeed, while the CBI distributive trades survey's reported sales balance jumped to +9 this month, the highest since May, retailers reckoned sales would fall sharply after Christmas, with the expected sales balance for January falling to -18, its weakest since August 2009.
(Editing by John Stonestreet)