(Adds details and background)
LONDON, Aug 28 (Reuters) - Bank of England Governor Andrew
Bailey said the British central bank has more ammunition to
support the economy from its coronavirus shock, and that big,
aggressive bond-buying pushes are most effective when crises
"We are not out of firepower by any means, and to be honest
it looks from today's vantage point that we were too cautious
about our remaining firepower pre-COVID," Bailey said in remarks
to an online conference organised by the Federal Reserve Bank of
"But, hindsight is a wonderful thing when you have it."
Bailey took over the BoE in March, just as the COVID-19
pandemic was pushing the world economy into a nosedive, and has
overseen a 300 billion-pound expansion of the BoE's bond-buying
scheme and a cut in its key interest rate to a record low 0.1%.
Bailey said research by the BoE showed bond-buying by
central banks was most effective at times of crisis in financial
"In the decade ahead, I think we need to take on board the
message the COVID crisis has reiterated, namely that our tools
may be state contingent in their effects," he said.
"And with that in mind, let's not ignore the need to manage
central bank balance sheets to enable such state contingency to
take effect. There are times when we need to go big and go
The BoE has previously said negative rates are also now part
of its toolbox - something Bailey reiterated on Friday - but any
next move to pump more stimulus into the economy is widely
expected to be a further increase in the bond-buying programme.
Britain's economy shrank by a record 20.4% in the second
quarter, the most severe contraction of any major economy.
The BoE has said the economy is likely to recover its
pre-pandemic size at the end of next year. Many economists think
it will take longer than that, meaning the central bank is
likely to have to consider carefully its stimulus options.
Alongside Bailey's remarks the BoE published research that
sets out arguments for reversing some of its asset purchases
before raising interest rates - the opposite of the BoE's plan
before Bailey took over as governor.
The working paper said the impact of quantitative easing
depended heavily on the state of the economy - so it could be
possible to withdraw some, creating scope for greater future
action, without tightening monetary conditions as much as
raising interest rates.
"If it is possible to set the appropriate stance of policy
using alternative combinations of the policy rate and QE, a
combination that provides more space for future QE may be
preferable, other things equal," the BoE said.
(Reporting by Andy Bruce and David Milliken
Writing by William Schomberg)