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King backs stimulus despite UK growth
Thursday, 29th July 2010 06.44am

Surprisingly strong UK growth in the second quarter does not mean the country's interest rate setters should put their foot on the brake, Bank of England Governor Mervyn King has said.

Giving evidence to parliament's Treasury Committee, King said significant risks to the recovery remained and monetary policy could still go in either direction.

"The debate is about the appropriate degree of stimulus, not about applying the brakes," King said.

"I am arguing that we have room to use monetary policy in either direction. I don't want to prejudge where it will need to go."

Minutes of the Monetary Policy Committee's meeting earlier this month, released last week, showed policymakers discussed easing policy for the first time since February although one member -- Andrew Sentance -- voted for a second time to raise interest rates.

Since the last meeting, data has shown the UK economy grew 1.1pc in the second quarter, almost twice as fast as expected. King cautioned, however, that the recovery remained fragile.

"The wider economic problems around the world underline the fact that we can't be confident that the recovery in demand, output and employment here in the UK will be sustained," he said.

Splits on the Bank of England's nine-member committee were apparent at the parliamentary session. Sentance described the current monetary policy stance as "extreme" and reiterated his conviction that a fairly strong recovery was under way. David Miles, however, said recent events in sovereign debt markets and in bank funding highlighted the downside risks, and further asset purchases may still be warranted "at some point in the future. (c) Reuters

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