LONDON (AFX) - Bank of England monetary policy committee member DeAnne Julius said there is "ample scope" for further interest rate cuts in the UK on the basis of the country's sound fundamentals, healthy growth and low inflation.
Speaking at the British Chamber of Commerce's national conference, Julius said U.S. and UK policy-makers have shown they are ready to respond to a slowdown in growth but the pace of their actions will depend on their respective domestic developments.
"In the U.S, the ability of monetary and fiscal policy to restore confidence and quickly reverse the capacity overhang is an open question, given the nature of their downturn," she said.
"In the UK, with sound fundamentals, still healthy growth and inflation below target, there is ample scope for policy to respond to weaker conditions, and more certainty that such a response would be effective," she said.
Julius, one of the MPC's most doveish members, appeared to be putting the case for a further cut at its April 5 meeting as a follow-up to the reduction of 25 basis points in February.
She noted that the MPC is charged by chancellor of the exchequer Gordon Brown to keep inflation stable at 2.5 pct.
"This means that if a slowdown in world growth begins to drag our own performance below its potential, so that prospective inflation looks likely to be below target, we are duty-bound to lower interest rates in order to support domestic growth and fill the gap in total demand," she said.
She said that while the MPC cannot directly measure potential growth, it can "keep an eagle eye" on inflation, which she described as, "a bit too low at 2.0 pct."
On the impact of U.S. Federal Reserve rate cuts this year, she said they look increasingly unlikely to quickly stem the decline in confidence and stimulate a v-shaped recovery in the second half of the year.
"The large imbalances that developed over the past four years will take time to unwind. Thus, at this point, I think it is more likely than not that the U.S. eocnomy will suffer at least a shallow recession and a protracted recovery, rather than a quick bounce-back," she said.
Julius, an independent member of the MPC, argued that differences between the two economies, "mean that is unlikely that the UK economy would mimic the pattern of the U.S. downturn" despite their cyclical links.
"We will be affected, but because we did not experience their boom, we are unlikely to suffer the full brunt of their bust," she said.