BoE’s King-more QE possible if economic outlook darkens

The Bank of England may have to restart its asset-buying programme if the economic outlook worsens, Governor Mervyn King said on Tuesday.

The central bank paused its 11-month-old 200 billion pound asset-buying — or quantitative easing — earlier this month and said that the programme could be revived if economic conditions deteriorate.

But many analysts think there is little chance of more QE and are predicting monetary tightening later this year.

Speaking before a parliamentary committee, King said that while the serious downside risks of another Great Depression had diminished, the economy was not out of the woods yet.

"This nascent recovery is fragile," he said. "The tensions that underlay the build-up of large world imbalances have not been resolved."

Asked whether he thought more QE would be needed, King said: "It may be. We'll have to see how things pan out. My particular concerns at present derive from the state of the world economy.

"Recovery in our largest export market — the euro area — appears to have stalled," he said.

Sterling fell around 1-1/2 cents against the dollar and government bonds rose as King and fellow Monetary Policy Committee memebrs delivered their gloomy assessments.

MPC member David Miles said that the decision on whether to increase QE in February had been for him, very finely balanced.

"It's a decision that is finely balanced, it's one we'll come back to in future meetings," he said. "If the news is that the economic outlook seems even weaker, inflation pressure is lower and that moves down that profile, I think there is (a) strong case then (for) expanding further the asset purchases."