ONE of the strongest supporters of the Bank of England’s quantitative easing (QE) programme today insisted that the central bank could sell government bonds without wreaking havoc in the markets.
However, monetary policy committee (MPC) member David Miles, who has been pressing for an extension to the Bank’s £375 billion bond-buying scheme since February, said there should not be a rush “to move the monetary policy dials back to more normal settings”.
That stance puts Miles at odds with Federal Reserve chairman Ben Bernanke, who said last week that the US central bank could slow its monthly $85 billion (£55.2bn) asset-purchase programme later this year as momentum builds in the world’s largest economy.
While global markets have been spooked by Bernanke’s comments, Miles said any reversal of the Bank’s QE scheme is likely to happen when financial markets are “operating more normally”.
In a bid to kick-start the economy, the Bank began buying government bonds, or gilts, in 2009 and Miles said QE had a “considerable impact” during the financial crisis because financial markets were not functioning properly.
He said large-scale gilt purchases helped to boost the price of some assets, particularly corporate bonds, “because they came at a time when those markets were in a downward spiral”.
He added: “It is likely that when bond purchases are reversed, financial markets will be working more normally. In more normal markets, portfolio changes could be expected to have much less of a price impact.”