The National Institute of Economic and Social Research, a British think tank, is calling on the Bank of England to refrain from further monetary stimulus.
They want the central bank to let the economy play out, and see if the recovery continues as is, because the economy has actually begun to outperform their expectations:
“There’s no reason for the Bank of England to do anything in the next three months,” Ray Barrell, Niesr’s acting director, told a press conference in London yesterday as he presented the group’s quarterly economic forecasts. “Growth in the second and third quarters of this year has been stronger than we anticipated three months ago. The case for further quantitative easing now is weaker than it was.”
They are concerned because of their belief that stimulus via quantitative easing (QE) could actually be dangerous should the economic recovery pick up steam:
“They should wait three months first to check that we don’t actually have demand exploding,” Barrell said, “What if we suddenly find QE has been much more effective than we ever thought? We really don’t know, we’re in a world we don’t understand.”
Note that Britain has far less room for error than the U.S. when it comes to QE, since inflation has been above the central bank’s 3% target already there. Should economic growth prove stronger than expected, yet the central bank engage in QE due to double-dip concerns, the combination could push inflation even higher as rising demand mixes with way too much liquidity.
The U.S. on the other hand has experienced near-zero core inflation, thus there’s far less risk of a stronger than expected recovery leading to significant inflation in the near-term.