--BOE's Julius: US likely to suffer at least shallow recession
--UK BOE's Julius: US has undergone hard landing
--UK BOE's Julius: "V-shaped" US recovery increasingly unlikely
--UK BOE's Julius: US recovery likely to be protracted
--BOE's Julius: UK inflation "a bit too low" at around 2%
--BOE's Julius: UK unlikely to suffer as much as US
--BOE's Julius: UK growth still healthy, inflation below target
--BOE's Julius: MPC must cut UK rates if RPIX likely below target
--Julius: Study suggests UK RPIX likely to remain below target

By Steve Ball
London, March 27 (BridgeNews) - There is "ample room" for U.K. monetary and fiscal policy to be eased as the economic situation weakens, Bank of England Monetary Policy Committee member DeAnne Julius said on Tuesday. In a speech to businessmen, Julius gave a downbeat assessment of the prospects for the U.S.
economy, saying that the U.S. had experienced a hard landing. She warned it was likely that the U.S. would experience a "shallow" recession, and that the recovery would be protracted and not quick.
* * * Julius' comments indicate that she will renew her arguments for a rate cut at the MPC's April meeting next week. At the MPC's meeting in March Julius was one of two "doves" on the committee who argued for a 25-basis-point cut. The other seven MPC members voted to leave rates on hold.
In a speech to the annual conference of the British Chambers of Commerce, Julius said that while the U.K. economy was doing well, the outlook for the U.S. was "much more worrisome."
Julius said that the situation in the U.K. was "so far, so good." However, "unfortunately I can't say the same for the U.S. Six months ago we were hoping for a gentle slowdown, a so-called soft landing, after four years of heady growth, led by an investment boom that drew upon, and fed into, the huge rise in stock market valuations. That bubble has now burst. The landing has been a hard one."
Julius said that she judged that the U.S. was set for a rough ride, despite the 150-basis points of rate cuts by the U.S. Federal Reserve since the start of the year.
"The question now is whether the aggressive easing of monetary policy by the Fed will quickly stem the decline in confidence and stimulate a V-shaped recovery in the second half of the year. My own view is that this is looking increasingly unlikely. 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. economy will suffer at least a shallow recession and a protracted recovery, rather than a quick bounce-back."
Julius said that despite the close links between the U.S. and the U.K. economies, it was unlikely that the U.K. would suffer as much as the U.S. as it had not overstretched itself too far.
"It is important to recognize that the medium-term fundamentals are quite different in the U.S. and the U.K. The late 1990s boom in share prices was not as marked in the U.K.; households are not as exposed to the stock market here; savings have not turned negative; the current account deficit is not as large; and we are less vulnerable to a rise in oil prices. These differences mean that it is unlikely that the U.K. economy would mimic the pattern of the U.S. downturn, despite the cyclical links between thetwo. We will be affected, but because we did not experience their boom, we areunlikely to suffer the full brunt of their bust.
Nevertheless Julius said that the MPC was mandated to cut interest rates if the economy were to weaken. "The MPC is charged by the chancellor to keep inflation stable at 2.5% - no more, no less. 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 that inflation was already "a bit too low at around 2%," and that a new study published Monday suggested that the underlying rate of inflation was 1.2% and that inflation would remain below target for at least the rest of this year.
Julius said that this made it easier for the U.K. to respond to global weakening. "In both the U.S. and the U.K. policy-makers have made it clear that they are ready to respond to a slowdown in growth. Indeed, both have done so already. But the pace of their actions will depend very much on their own 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. In the U.K., with sound economic fundamentals, still health 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."