Bank of England will 'probably' have to print money, says Bean

BRITAIN'S central bank will probably have to take further action to lift the economy out of recession, deputy governor Charles Bean yesterday admitted.

Quantitative easing – effectively printing money – was likely to prove useful now that the Bank of England's key interest rate, currently at 1 per cent, was reaching its floor, Bean said.

"The broad picture is for inflation to continue to run well below the target in the medium term," Bean told the National Farmers' Union in Birmingham.

"The (Bank's] monetary policy committee will probably need to take further action to return inflation to the target in the medium term. That is a discussion we will no doubt have at future meetings."

Inflation is forecast to fall sharply in the coming months, with the central bank forecasting a rate of 0.5 per cent in two years' time – well below the official 2 per cent target.

Governor Mervyn King last week said those forecasts implied interest rates would have to fall further, followed by action to boost the money supply, to bring inflation back to target.

Bean gave a gloomy forecast for the immediate economic outlook but pointed to better times towards the end of the year – a view in line with the Bank's recent forecasts.

He said: "A sharp contraction in activity, both here and abroad, is already baked into the cake for the first half of this year.

"But there are grounds for thinking that conditions may start to improve later in the year as there is a substantial economic stimulus already in the pipeline."