Britain's economic outlook has improved slightly since the central bank launched a second round of quantitative easing in October, but more QE will probably still be needed, Bank of England policymaker Adam Posen said on Monday.
Posen - a lone advocate of more QE throughout most of 2011 - stopped short of directly calling for further asset purchases when the current 75 billion pounds' worth are complete at the end of the month, saying that the Bank was still revising its quarterly forecasts.
Things are a little better, Posen told reporters after a speech at Nottingham Trent University, citing the benefits of Bank and European Central Bank policy action, better-than-expected growth in the United States and China, and reduced tensions in bank funding markets.
But that's not enough good news in my world to suggest we have solved the problem, though I am going through the forecast round with my colleagues.
The Bank's November forecast - which Posen said he agreed with more than previous ones from the Bank - predicts growth of less than 1 percent for most of 2012, and expects inflation to fall well below the central bank's 2 percent target in 2013.
Partly as a result, most private-sector economists polled by Reuters expect the Bank to approve another 50 billion to 75 billion pounds of QE next month.
Posen denied there was any real discussion on the Monetary Policy Committee as to which rate of purchase would be better, saying policymakers were focused on the broader economic picture - though he added that in the past, he had viewed QE of less than 50 billion pounds as not worthwhile.
WEAK PRODUCTIVITY GROWTH
Earlier, Posen had pointed to the limits to monetary policy's ability on its own to increase investment at a time when risk appetite was low.
A big problem for not just the UK but for all of the West - and I'll put Japan in this category as well - is that people are very reluctant to take on risky investment. In the short run, that's the real problem, he said.
Now we give people free money and they say: 'Oh good, I can pay off some debt and leave it in my bank account', he said, adding that the government and the Bank needed to do more to encourage investment.
The bulk of Posen's speech was focused on the reasons for Britain's weak productivity growth during and after the financial crisis.
Citing upcoming research from the Bank, he said that much of the blame could be laid at the door of so-called dawdlers - firms in Britain's financial, transport and communications and professional services sectors - that had been too slow to shed staff.
Productivity growth elsewhere in the British economy was solid, and the average was likely to rebound to its long-run pre-crisis trend as soon as firms in the sectors he mentioned started to shed more jobs.
Relatively high levels of union membership and exposure to higher oil prices had hurt productivity in the transport and communications sector, while financial services firms had failed to cut jobs in line with the reduced value of their output after the financial crisis, he suggested.
There was little evidence of significant numbers of unemployed workers losing skills during the recession, he said.
But lost investment opportunities might mean Britain's long-term trend rate of GDP growth was nearer the 2.2 percent to 2.3 percent it saw for most of the last century rather than its immediate pre-crisis rate of about 2.5 percent, he added.
I believe - and I think you will find, if you ask most members of the MPC, they believe - that we are going to get back to the growth trend we were in for the past 100 years, he said.
(Reporting by David Milliken; Editing by Tim Castle and; Jan Paschal)