QE has been effective

Contrary to my last post, a BoE policymaker has spoken out in favour of QE, suggesting the Bank is right to inject further stimulus into the economy. This time however, the quote is much shorter!

"Mr Miles, who has supported additional stimulus throughout most of this year and voted for more quantitative easing against the majority of the nine-member Monetary Policy Committee on several occasions, said that a further cut in the record-low interest rate could prove counterproductive.

"Monetary policy in the UK has been set to its most expansionary setting in history; and I believe it is right that it is still being moved further in that direction," Mr Miles said, according to the text of his speech at an event in Edinburgh.

In July the Bank launched another £50bn round of government bond purchases with newly-created money to boost the recession-hit economy and most economists expect more once the current programme is completed in November.

Mr Miles reiterated that quantitative easing helped support the economy, Reuters reported.

"I believe the evidence is that it has had a significant positive effect," he said, adding that the current economic weakness was no proof that quantitative easing had ceased to work as other forces were holding the economy back.

"It is not as if it is hard to identify such forces - one of which is the clear deterioration in the funding conditions for banks across Europe that began in the autumn of last year and which was followed by falling confidence across most of Europe and stagnation in economic activity," he said.

Mr Miles stuck to the central bank's position that a further cut in the benchmark rate could be counterproductive.

"There were reasons to believe [during the financial crisis] that the benefits of cutting Bank Rate further [from the current 0.5pc] were, at best, likely to be small and that the effects could well be perverse," he said. "I see no obvious reason to think things are much different today, though this is something to keep monitoring."

While Mr Miles said a rapid return to a more normal monetary policy was not imminent, he laid out his view of an exit strategy.

"The timing and the speed of reversing the unusually accommodative monetary policy stance will be determined by the outlook for inflation," he said.

"I believe there are likely to be advantages to raising Bank Rate first [before selling back bonds], and I would expect this to be the strategy," he said."