Tough times for British consumers look set to continue, Bank of England policymakers said on Tuesday, though they differed over whether more monetary stimulus might be needed for the struggling economy. Official data released just before BoE Governor Mervyn King and other top officials addressed legislators showed the biggest fall in households' disposable income in more than 30 years, against a backdrop of sluggish overall economic growth.
However, with inflation at a 2-1/2 year high of 4.5 percent, and only forecast to ease slowly, policymakers are divided on whether the BoE might need to revive its quantitative easing programme to pump more money into the economy. The BoE has kept rates at a record low of 0.5 percent since March 2009, and earlier this year economists had expected a rate rise before now.
Any prospect of a rate rise has now disappeared into 2012 as far as the markets are concerned and talk turned to prospects of more asset purchases this month, after policy minutes revealed some MPC members other than habitual dove Adam Posen had discussed the option following a run of weak data. External MPC member David Miles said in a report to British legislators on Tuesday that he considered more asset purchases could be an option for the future.
But BoE Deputy Governor Paul Tucker, in a subsequent appearance before lawmakers, said the Monetary Policy Committee was not uniformly moving in the direction of more QE, and that the bar for him to support this would be high. King said more QE could be viewed as too much of an "easy option" to tackle slow growth, but he also played down the prospect of imminent rate rises.
"The reason we would raise interest rates would be in the context of a much stronger economy with unemployment falling rather than rising," he said. Earlier on Tuesday the Office for National Statistics confirmed its earlier estimates that Britain's economy grew by just 0.5 percent in the first three months of 2010, a muted bounce from Q4's dismal 0.5 percent contraction.
Household spending declined at its fastest quarterly pace since Q2 2009, dropping 0.6 percent. Once the effect of higher taxes and inflation was taken into account, real household disposable incomes were 2.7 percent lower than a year earlier, the biggest annual fall since 1977.