Bank of England chief confident of progress

BANK of England deputy governor Charles Bean has said that the effects of quantitative easing will take time but things look to be “heading in the right direction”.

Speaking to an audience of Yorkshire business people, the economist said that changes in UK interest rates took nine months to make an impact on the economy and the Bank believes that its current policy of quantitative easing (QE) – in which £125bn has been pumped into the economy to boost spending – will take at least as long.

Speaking at a Bank of England seminar before an audience of 150 people at the Crowne Plaza Hotel in Leeds this week, Mr Bean said: “When we change bank rate we expect it to take nine months to work through. The quantative easing effects are likley to take that long or even longer.

“But we are monitoring it to see whether we do more. Things are looking at least as if they are heading in the right direction. The aim is to get money spending growth back to a level consistent with trend growth and 2% inflation.”

The deputy governor said that the Bank of England is likely to raise interest rates as a measure to put the brake on QE as the “recovery proceeds”.

“We are going to need to withdraw the stimulus and we have two ways of doing that. We can raise the bank rate first and unwind asset purchases later.

“But we don’t want to do it too early and nip the recovery in the bud. We will look at conditions one month at a time and try to form our best opinion,” he added.

Mr Bean said that the measures by the bank to try to support the UK economy and business came after an “unbelievably sharp” fall in world trade, the like of which had only been duringthe two world wars.

“We don’t know how how strong the recovery is going to be. There is likely to be a continued drag from the banking sector which is still somewhat fragile.

“I would like to stress that it takes time for these effects to work through the economy.”

Mr Bean said that business people were welcome to submit questions to him via the Bank of England website at www.bankofengland.co.uk