Bank of England Deputy Governor Charles Bean cautioned against over-optimism following third- quarter gross domestic product data and said U.K. growth may be weak in the final three months of the year.
The figures were “stronger than we expected, but we should avoid getting over-excited,” Bean said in an interview with Sky News television today. “It’s quite possible that we see weak growth in the next quarter. The big picture is of an economy that’s been bumping along the bottom.”
The bank’s Monetary Policy Committee will meet Nov. 7 and 8 to decide whether to increase its 375 billion-pound ($604 billion) stimulus program as it seeks to support the recovery. Policy makers are split over the need for more asset purchases, minutes of the October meeting indicated. Data on Oct. 25 showed the economy surged 1 percent, the fastest pace of growth in five years, is likely to add to divisions.
Bean said that about half of the third-quarter growth was due to a recovery from output that was lost in the second quarter because of an extra public holiday for Queen Elizabeth II’s Diamond Jubilee, while the London Olympic Games added an extra boost.
Asked about how the third-quarter GDP figure will influence the central bank’s decision on whether to add to quantitative easing, Bean said that “it’s always a mistake to read too much into one figure.”
Bean’s caution echoed that of Deputy Prime Minister Nick Clegg in an interview published in today’s Observer newspaper.
“I have always said our recovery is going to be slow,” the newspaper cited Clegg as saying. “It is part of a long healing process; it is part of a complex rebalancing process and the recovery is going to be fitful.”
The opposition Labour Party’s business spokesman, Chuka Umunna, said in an interview on Sky that “the statistics are one thing; how people feel is another.” Businesses “are not seeing the orders come through, families, individuals are still feeling the squeeze on their living standards,” he said.
Nevertheless, Bean told Sky, there’s “reason for some optimism going forward.”
“Some of the headwinds that we’ve been struggling against in the past couple of years will be abated somewhat,” he said. “Generally speaking, real household incomes won’t be squeezed quite as much.”
Bean also noted “some progress” toward resolving the debt crisis in the euro area, Britain’s biggest export market, making for a “slightly better picture.”
Conditions in the U.K. banking system have also shown “some signs” of improvement, he said. He said that the Bank of England will be “proactive” and “interventionist” when it takes over new responsibilities for bank regulation.
“U.K. banks made significant progress in improving their resilience,” Bean said. Even so, “we still think there’s risks out there, most particularly from the euro zone.”
Asked about the process of appointing the next Bank of England governor after Mervyn King steps down in June, Bean said he let the Treasury know “some time ago” that he wasn’t interested in the job.
“I don’t see myself as having the right skill set to be governor, and on top of that I have personal reasons,” he said. He said he would continue at the bank for a short period “if it’s helpful to the new governor for me to stay on a little bit to smooth the transition.”
Deputy Governor Paul Tucker is the favorite to take over from King. Rivals for the position include Financial Services Authority Chairman Adair Turner and John Vickers, who led the Independent Commission on Banking. The Treasury will announce the decision by the end of the year.
“Of all of the names that have been touted in connection with the job, each of them would bring a lot,” Bean said. “I don’t think it’s the case that the cupboard is bare.”
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