Bank of England should consider unwinding £435bn quantitative easing programme early, says policymaker

'Given that other central banks are thinking about it, I think it would be remiss of us not to at least think about it,' Mr McCafferty said

Mr McCafferty said this was a personal view rather than Bank policy (Reuters)

A Bank of England policymaker has said that the central bank should "think about" selling down its £435bn stock of assets, despite previous indications that any reduction in its balance sheet will not occur until interest rates have first been raised several times.

Ian McCafferty, an external member of the Monetary Policy Committee, in an interview with The Times said the Bank might want to follow the example of the US Federal Reserve, which has said it is planning to begin winding down its $4.5 trillion stock of assets accumulated since the financial crisis.

"Given that other central banks are thinking about it, I think it would be remiss of us not to at least think about it," Mr McCafferty said, adding that this was a personal view rather than Bank policy.

"I think it's a question that needs a bit of asking."

The Bank of England accumulated the assets as a by-product of various rounds of money printing since 2009 to support growth.

Any sell-offs would constitute a monetary tightening and the Bank had previously indicated that this process would not begin until interest rates had returned to around 2 per cent.

They are currently 0.25 per cent.

The Bank's Governor, Mark Carney, told the House of Lords economic affairs committee in December 2013 that rate rises would precede any asset sales.

"[Our] first move would be to tighten conventional monetary policy, and we would likely … tighten conventional monetary policy for some time, or to some degree, before we would consider adjustments to the size of our balance sheets," he said.

Mr McCafferty, who voted for an increase in the cost of borrowing for the UK in June, also made it clear that he had not changed his mind, despite a run of disappointing survey and hard economic data in recent days.

"As of today, I would not be changing my position," he said, and citing the still strong employment growth data as an indication that the economy was robust.

"Companies don't continue to hire if there is a significant slackening in demand...That suggests there is some underlying resilience in the economy," he said.

At its July meeting the US Fed said it "currently expects to begin implementing a balance sheet normalisation program this year, provided the economy evolves broadly as anticipated".

The Bank has been wary of selling assets for fear of unsettling the Gilt markets.

But Mr McCafferty suggested a reduction in the Bank's balance sheet could remove some unhelpful financial distortions.

"The slope of the yield curve is now abnormally flat. The unusual flatness then means you have slight distortions to discount rates, to the way in which firms think about investment, all sorts of things that maybe we need to consider," he said.

"It may well be that we need to think, 'Are there qualitative differences in terms of the impact on the slope of the yield curve'?"

The MPC is more split over the question of whether rates should rise than at any time since 2011.

Three of the eight members voted in June for a rate rise and one other member, Andy Haldane, has since suggested that he is leaning towards joining them.

But one hawk has since left the MPC and three members - Gertjan Vlieghe, Ben Broadbent and Sir Jon Cunliffe - have since made it clear they are not inclined to put up the cost of borrowing imminently.

The next rates meeting of the MPC will be on 3 August.