BOE Miles: Looser Policy Now Could Mean Quicker Return To Normal

An aggressive loosening of monetary policy now might spur economic recovery and make it more likely the Bank of England could start raising interest rates sooner, BOE policy maker David Miles said Thursday.

Miles said the central bank could hit its 2% inflation target in two or three years were it to buy more assets now and tighten policy before the second half of 2014, as investors expect.

"It might be the case that a path such as that could be a better one for the economy. Aggressively loosening monetary policy now might bring us closer to the point at which bank rate could be moved back towards a more normal level," Miles said in a speech to the pro.manchester business conference in Manchester, northern England, referring to the BOE's key interest rate.

"Bank rate is certainly not at a normal level today. That is an argument that influences the way I see monetary policy today," he said, according to a text of his speech.

The rate-setting Monetary Policy Committee voted to expand the central bank's bond-buying stimulus program by GBP50 billion in February, yet Miles was among a minority that voted for a larger, GBP75 billion increase.

Miles' speech suggests he may support further asset purchases later this year, unlike fellow rate-setter Martin Weale, who said Wednesday he doesn't believe more stimulus is currently warranted due to lingering inflationary pressures.

Miles said Thursday inflation in the U.K. is likely to keep slowing in 2012 and is likely to be at around 2% by 2015. The annual rate of inflation slowed to 3.6% in January from a high of 5.2% in September.

The bulk of Miles' speech was devoted to defending the central bank's asset purchase program from critics, who accuse policy makers of penalizing retirees, principally by driving down bond yields that are used to calculate pension annuity rates.

Miles said there is evidence that the central bank's stimulus efforts, due to reach GBP325 billion when the latest round of bond purchases is completed, has pushed up asset prices and has inflated the value of retirees' pension pots.

"If monetary policy generates rises in other asset prices besides gilts it can offset some, or all--or more than all--of the effects of rising annuity prices," Miles said.