MNI INTERVIEW: End QE Early, Drop Guidance - Ex-BOE MPC Miles

The Bank of England should consider ending its current asset purchase programme early and the Monetary Policy Committee give itself maximum policy flexibility to either ease or tighten policy as needed rather than tie its hands with forward guidance, former committee member David Miles told MNI in an exclusive interview.

Miles, an MPC member from 2009 to 2015 and now an economic advisor to the Bank, sees little justification for completing the QE programme and he places heavy weight on the MPC giving itself the freedom to adjust policy in response to changing economic circumstances.

The MPC votes this week whether to maintain its Gilt purchase target at GBP 875 billion by completing the current GBP150 billion government bond purchase programme, or to end it early, with recent commentary from committee members suggesting an active debate and the possibility of a split vote.

Purchases are currently set to run through year-end.

The MPC is also expected to release the outcome of its review into policy tightening on Thursday.

INFLATION PICK-UP

Relative to last November, when the current GBP150 billion of purchases was announced, economic circumstances have altered significantly, Miles noted.

Back then there were doubts over vaccine efficacy and the speed with which vaccines would be rolled out and "we hadn't seen inflation pick-up as much as it has, there was a projection that unemployment would be significantly higher by now than it turns out to be and that the bounce back in economic activity would not be as large as it has been," said Miles, who is also Professor of Financial Economics at Imperial College.

"A perfectly sensible reaction to this would be to say 'look, we announced in November 2020 what we thought the right thing to do and set off on a trajectory that would be to buy GBP150 billion until roughly the end of this year … Now we have got to August 2021 and things have changed. To stick to the original trajectory is not required by some notion of consistency of action".

Against this background, Miles sees it as "hard to think" policy should be even more expansionary over the next 3 months.

FORWARD GUIDANCE

An early ending of the current programme gives rise to questions over the efficacy of future policy decisions, with any announcement then subject to the possibility of non-completion, also making forward guidance a more difficult task for MPC members. But Miles feels flexibility is by far a better option.

"I am very much in favour of central banks having flexibility and I am sceptical about the value of forward guidance. The recent history of central banks using forward guidance is not a very happy one," Miles said.