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BoE open to new stimulus measures

Wednesday, February 13 12:34:30

Britain's central bank said today that inflation will not fall back to its 2 percent target until early 2016 but that it was still open to more bond purchases to boost Britain's stagnant economy.

It noted, however, that there were limits to what such a policy could achieve.

The economy was set for a "slow but sustained recovery" over the next three years, and economic output was unlikely to surpass its pre-financial crisis peak until 2015, the Bank of England said in its quarterly inflation report.

It forecast that inflation in two years' time was likely to be around 2.3 percent, up sharply from the 1.8 percent forecast in November. It also extended the time frame for returning to target by 18 months from what it predicted in November.

The bank's forecasts suggest inflation will peak at about 3.2 percent in the third quarter of 2013.

But in a news conference following the release of the report, outgoing Governor Mervyn King said that this would not stop the bank from pumping more money into the economy if needed.

"You might be tempted to think that an above-target inflation forecast justifies a tighter monetary policy, and certainly ensuring that inflation returns to target in the medium term is our primary responsibility and objective," he said.

"But the (bank's) remit is to deliver price stability in the medium term in a way that avoids undesirable volatility in output in the short run. The prospect of a further prolonged period of above target inflation must therefore be considered alongside the weakness of the real economy."

The Bank of England has spent 375 billion pounds ($587 billion) on buying government bonds but has held off from increasing the programme.

King said, however, that more purchases, or quantitative easing (QE), were no panacea. (C ) Reuters