UK – The incoming Bank of England (BoE) governor, Mark Carney, will most likely try to stimulate the economy with “different sorts of quantitative easing”, a former deputy governor has predicted.

Sir John Gieve, who served as deputy governor for financial stability for three years from 2006, also said he expected a further round of “monetary activism” from the central bank that would keep interest rates low, increasing the pressure on UK pension funds.

Speaking at the National Association of Pension Funds Investment Conference in Edinburgh last week, Gieve also said that it was time to move away from a system of pure inflation-targeting, as the system had failed.

He told attendees he expected the “short, sharp” review of the BoE’s targets to be launched in the UK’s Budget next week, ahead of the arrival of new governor Mark Carney – whose appointment  to replace Sir Mervyn King this summer was announced last year.

Gieve explained why he viewed a change in the Bank’s inflation targeting mandate as necessary “just in terms of honesty”.

“Inflation-targeting, pure inflation-targeting, failed and needs to change,” he said. “I would set a growth and an inflation objective, but I wouldn’t combine them into a money/GDP target, that seems to be incredible.”

“It’s incredible to tell people that authorities will react exactly the same if they get 5% inflation and no growth, or 5% [growth] and no inflation. I think it strains credulity.”

He added that he expected the UK’s chancellor George Osborne to detail before Carney’s arrival how much the bank should be allowed to depart from its current 2% inflation target, for how long and under which economic circumstances.

“A move, in short, to something like the Federal Reserve’s position, which is that they will keep interest rates low until  either unemployment has fallen below 6.5%, or underlying inflation has gone above 2.5%,” he said.

The former professor of economics at the London Business School also predicted Carney’s time at the BoE would see a new wave of quantitative easing (QE), if not the same type of stimulus undertaken by his predecessor.

“I’d expect him to try to do different sorts of quantitative easing, perhaps buying some more securities – things that go directly into the private sector, rather than just Gilts,” he said.

“We are going to see another round of monetary activism from the central bank,” Gieve added, “and I’m afraid the immediate point of that is to hold interest rates down right along the curve – long-term, as well as short-term and that of course is no let-up for pension funds.”

Gieve – whose time at the bank saw a run on the UK lender Northern Rock, as well as its eventual nationalisation – admitted his tenure had seen “mistakes” and that the BoE “bungled, or fumbled at any rate” the lender’s rescue.

He said that the Bank “of course recognised” that there was instability in the financial system prior and during the sub-prime mortgage crisis.

“We thought that we’d established a fundamental stability, which meant we could ride those out – as we had ridden out the dot-com boom and bust – without any huge macro-economic effects.

“Well, obviously that was rubbish, really,” he admitted.

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