Comment & Analysis

Thursday July 2, 10:20 AM
HIGHLIGHTS-BoE's Miles appointment hearing with UK lawmakers

LONDON, July 2 (Reuters) - Following are highlights of verbal and written testimony by Bank of England Monetary Policy Committee member David Miles on Thursday at his appointment hearing before Parliament's Treasury Committee.

For the full text of Miles' submission to the Treasury Committee, click on: http://www.bankofengland.co.uk/publications/other/treasurycommittee/appoint/miles_july09.pdf

ON V-SHAPED RECOVERY

'It may be the case that we get what looks like a very sharp rebound over the next few quarters: one might interpret that as a V-shape but that doesn't really tell you an awful lot about what the likely path of GDP growth will be.'

RAPID RETURN TO ABOVE-TREND GROWTH UNLIKELY

'I remain of the view that while a return to growth does seem to be plausible, and monetary policy is having traction in the economy, the idea that we'll return to rapid growth and that there will be a sustained return to growth above the long-run trend of 2.5 percent seems pretty unlikely.'

ON STERLING DEPRECIATION

'It's natural we've seen a substantial depreciation in sterling, but whether that's enough to generate a very substantial turnaround in net exports depends on how price sensitive you think exports are.'

'What we have seen is a pretty substantial fall in the trade weighted value of sterling. Although there's uncertainty over how sensitive to prices exports and imports are. The longer run impact of such a big depreciation is pretty substantial.'

ON GROWTH OUTLOOK

'I don't think that the very deep recession we're going through necessarily changes the long-run growth rate, but it removes a chunk of capacity in the economy which will go forever.'

ON UNWINDING QE

'At some point the overall stance of monetary policy, which is exceesivly lax a moment and quite rightly so, will need to be tightened. That could come through a combination of changing the policy rate and (unwinding) some of the purchases of assets.

'Quite what the mix will be depends a little bit on whether or not the extra money generated by QE is held willingly by households, companies and banks in a way that consistent with the inflation target. I could imagine a sitation where extra money is not held willingly, in which case it would not be right to (unwind the policy).

'If desired holdings of money are lower than would be implied by the scale of QE, then the right stance would be to reverse QE, but i wouldn't want to prejudge that.'

ON BANK SECTOR PROBLEMS

'The problems in the banking sector -- the banking sector is on life support and the ability of banks to lend is curtailed. Foreign banks, in many cases for a more extended period, have pulled out of the UK.'

WORST OF DOWNTURN IS PAST

'So the prospect of a rapid return to growth doesn't seem a highly probable outcome. But there are reasons for thinking the period of the most rapid declines in output are behind us.'

Keywords: BRITAIN BANK/MILES (UK Economics Desk; Tel. +44 207 542 2774)

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