LONDON: Bank of England Governor Mervyn King and other policymakers spoke to the British parliament's treasury committee about the central bank's quarterly economic outlook on Tuesday.
Following are highlights of remarks from King, BoE executive director for markets Paul Fisher and external members of the Monetary Policy Committee Paul Fisher, Ben Broadbent and Martin Weale.
KING COMPLETELY CONFIDENT WITH CARNEY
"I think anyone who holds down a job like mine wants very much on the day when they leave, to hand the Bank on to someone who they know will carry on the good work, and I am completely confident with Mark Carney as someone with whom the Bank is in very good hands - as indeed is the role of governor which I am sure he will carry out with very great distinction.
"It may be unreasonable to expect anything other than a slow and protracted recovery absent a further fall in the real exchange rate. In such an environment, there are limits to the ability of domestic policy to stimulate private sector demand as the economy adjusts to a new equilibrium. In the event that further easing is required, I believe it appropriate to continue with our policy of purchasing gilts."
KING ON REBALANCING STILL NEEDED IN UK
"The underlying problem is one in which there is still a great deal of adjustment to be made in the financial sector, a great deal of adjustment to be made in the economy as a whole - the need for rebalancing - and in this sort of situation, it is very unlikely that we would expect to see a rapid recovery.
KING ON RAPID GROWTH CHANCES
"We have significantly lowered, in our view, the chances of growth being rapid. Now this is something which I think has been building up in our minds over the past year. It's not a sudden change between August and November. I think it was a result of finally realising that, as we had debated among ourselves, the chances of a very rapid expansion of growth - which you might have expected if this was a normal cyclical downturn and then recovery - we do not think the chances of very rapid growth in 2013 and 2014 are very great.
KING ON CHINESE GROWTH
"I think the (BoE) staff probably take a more upbeat view on the prospects of the Chinese economy than I would be inclined to. We've had quite an active to and froing as to why I believe what I do and why they believe what they do."
FISHER ON PERCEPTION BoE SENIOR STAFF NOT OPEN TO ALL IDEAS
"We've frequently put up things we knew might be unpopular because we thought it was the right thing to do. Sometimes they're accepted, sometimes some other decision is made, and I think what we have to address is why the staff have this perception. I think that could be because they don't see the whole of the process. It's a relatively ad hoc process One of the ways forward on this might be to have a bit more formality whereby we share minutes with more of the staff so they could see the whole of the discussion."
BOE'S KING ON SHARP SHIFT OF TONE
"We made what we thought was a realistic change to our judgments about where the balance of risks lies.
"I think we should have done it earlier and we didn't. I think there are times where you debate something and you finally decide, well look, our judgment really has to change now. And we wanted to make clear that we did not think that the balance of risks was appropriately reflected in previous inflation reports and that we felt that this was a much more accurate reflection of where the committee was coming at.
KING ON MONEY SUPPLY WITHOUT QE
"I do feel, and I would look at this through what has happened to the figures of core money, with the absence of what we had done, I would have expected a contraction in core money and that would have taken us into very serious territory.
KING ON QE AND INFLATION
"In more normal times you might expect that an expansion of reserves would feed through to an expansion of broad money, hence to demand spending and then ultimately inflation. That is not happening at present. If we saw any sign of that happening that would be the moment to make a sharp change to the size of central bank reserves that we have created."
KING ON TOUGH CALL AHEAD ON TIGHTENING POLICY
"The judgment about how much to raise bank rates or how much to engage in asset sales, and the knock-on effect of that on long-term interest rates, will be difficult to gauge in advance and will determine the outcome of policy. So there's a very difficult policy judgment to be made down the road, first as to when we start tightening monetary policy, and then how rapidly we tighten monetary policy. But I don't think it's a debate about how we would do it. But the very difficult judgement which I'm sure my successor will help the committee find the way through, that will be a tough judgment."
FISHER ON QE
"Having been to the States, the evidence I've had there from market contacts is that QE easing seems to be working more strongly now there than it did in the earlier phase- through the similar sorts of portfolio balance channels."
"I thought it had no impact at all on the long-run fiscal position and there was no benefit to the taxpayer from making this change.
That what you might gain in one year on the published accounts, you would lose on the subsequent year and that view I made very clear.
"But it was their money and it's not for me to say what they should do with their money, or how they publish their accounts."
KING ON COUPON PAYMENT
"Any move of this kind is likely to attract a good deal of cynical comment from our press ... It's very clear ... that this does not give anyone an option. It merely is taking cash in one year with a clear commitment to have to repay it in the next and any impact it has on borrowing this year will be offset by other things being equal a higher borrowing need down the road. It doesn't have any impact on the long-term fiscal position."
KING ON DECISION TO TRANSFER FUNDS
"We accepted that the money belonged to the Treasury and they were entitled to have the money back. Consequences of that in terms of the presentation of the public accounts, and the concerns that you and others have raised -- that it may be a method of misleading people about the public accounts -- is entirely a consequence for the Treasury to face up to. That is not for the Bank .
"Usually we don't stray into fiscal policy territory. This is about presentation of public accounts, and I do not want to dissuade you from looking into that and raising it with the Treasury, but it is a matter for the Treasury.
They are entitled to publish their accounts in the way that they want. And you're entitled to challenge them about whether those accounts are misleading or not."
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