MNI London - The Bank of England will not unwind quantitative easing until there is a risk inflation is going above target, Executive Director Markets Paul Fisher said Thursday in a question and answer session following a speech.

Fisher said with the BOE having injected stg200 billion via asset purchases, that amount of money will stay in the economy until the central bank unwinds it, and it will not do that until the inflation outlook justifies it.

"The effect of QE is that it's a levels thing. We have got stg200 billion extra amount of money we have injected into the economy and that stays in there until we take it out and we are not going to take it out until we think there is a risk of inflation going above target," Fisher said.

He was talking a week after the BOE published its latest Inflation Report, showing a broadly V-shaped growth recovery. He denied, however, this was an optimistic forecast.

"We are often accused of being optimistic with our GDP forecast," he said, adding, "Just look to see how many years it takes to regain the level of output that we had in the middle of 2007, or at end 2007."

The UK economy will have to reverse a near 6% drop in output from peak and this will take time.

"We don't think our forecast is particularly optimistic," Fisher said, adding, "But it does get us back to positive growth and indeed above trend rates of growth."

Fisher highlighted the uncertainty surrounding the economic outlook.

"Trying to work out where the economy is going to go at the current stage is just deeply uncertain," he commented.

Asked if bank lending would decline again as the BOE pulled out of quantitative easing, Fisher said, "the thing about the QE programme is that it wasn't designed to try and boost bank lending directly."

He said a lesson from Japan's experience of quantitative easing was that it did not boost bank lending, and so the BOE had not tried to achieve this.

On specific asset purchase programmes, Fisher said there was no point the BOE getting involved in markets where there was insufficient demand, and the BOE did not believe at this stage there were enough investors in residential mortgage-backed securities to justify the BOE's involvement.

** Market News International London Bureau: 44 207 634 1655 **