The Bank of England will probably have no reason to sanction an expansion of its quantitative easing programme when current purchases are complete in May, despite headwinds to consumer spending, Bank policymaker Martin Weale said on Wednesday.
Weale's comments are the starkest sign of reluctance to engage in further stimulus from a policymaker so far after comments earlier in the day from governor Mervyn King and his two deputies also raised doubts about more QE.
British inflation hit a three-year high of 5.2 percent in September, and has since dropped to 3.6 percent. In updated forecasts earlier this month, the Bank forecast that it would fall below its 2 percent target by the end of the year.
But Weale said he was concerned that - unlike late last year - seasonally adjusted monthly rates of inflation were not consistent with annual inflation falling as forecast.
I argued after our November forecast that one could ... still see a case for further quantitative easing once the programme we announced in October came to an end.... I do not think there is likely to be a further case once our current programme is complete, Weale said.
Earlier this month, the Bank sanctioned a further 50 billion pounds of asset-buying with new money, known as quantitative easing, taking the total programme to 325 billion pounds since it was started.
Minutes of that policy meeting showed two of the nine members sought a bigger increase, while others considered doing nothing, worried that inflation may turn out higher than the central bank expects.
Weale said in his speech at Cass Business School in London that the recent rise in oil prices was a concern, as was the risk that inflation might prove more sticky than rising unemployment and weak demand might suggest.
The yield curve suggests that an increase in bank rate is not fully priced in until mid-2014. But, obviously, if the very real risks I see about inflation do materialise, then it is perfectly possible that the first rise will come earlier than that, he said.
Weale's concerns about inflation contrast with his downbeat views about consumer spending, to which he devoted the bulk of his speech, and which he said risked causing growth to be weaker than the Bank currently forecasts.
Though recent data suggested that consumption may continue to rise in Q1, there were significant headwinds to demand in the medium term, he said.
A greater risk of unemployment and tighter credit conditions after the financial crisis were causing households to prefer to save rather than spend, Weale said. Of particular significance was the concentration of unemployment and weak wage growth among young people, who unlike their elders lacked reserves of past saving to draw on during lean times, he added.
This points to limited room for a rebound in consumption growth, he said. (But) weaker overall demand does not necessarily translate into below-target inflation in the medium-term.
(Reporting by David Milliken; editing by Ron Askew)