The MPC's Martin Weale believes there is 'scope' for new round of QE if oil prices continue to fall and debt crisis worsens

Hopes of a fresh round of quantitative easing in the UK increased on Thursday after Martin Weale, of the Bank of England's monetary policy committee (MPC), used a speech in Doncaster to say there is "undoubtedly scope" for the radical recession-busting policy to be extended.

Weale, who was one of two hawks advocating an increase in interest rates until he changed his vote at this month's meeting, said the Bank could restart quantitative easing if oil prices continue to fall and the sovereign debt crisis in the eurozone worsens.

Warning that events on the continent are a greater threat to the UK economy than the slowdown in America, Weale said: "There is undoubtedly scope for further asset purchases to trigger further reductions in yields on government debt should the need arise."

His comments came as City economist Simon Ward, of fund manager Henderson, urged the Bank to take advantage of historically high bond prices to book a £30bn profit on the £200bn portfolio of assets bought in the first round of quantitative easing.

The asset purchase facility (APF), which holds the assets – almost all government bonds – pays the Bank of England the base rate of 0.5% on the £200bn used to purchase the gilts, but is receiving higher rates of interest from the Treasury. It has also made a capital gain as the price of gilts has risen in recent months.

Ward urged the chancellor, George Osborne, to crystallise that gain, by cancelling the gilts, and instead taking on the APF's loan from the Bank, with its much lower interest rate.

In his speech, Weale said that while bond yields are at historic lows – the flipside of high bond prices – a new round of quantitative easing could focus on buying longer-dated government loans, helping to push down long-term interest rates, and increase the price of other assets, such as shares.

"The resulting capital gains will provide support to consumption and a general reduction in the term structure of interest rates is likely to lead to knock-on capital gains on other assets, which will provide further support to consumer spending," he said.

He added: "Higher asset prices and lower interest rates are also likely to support business investment. The extra demand which results will both support output and help to underpin the rate of inflation."

This strong argument for the benefits of quantitative easing echoes Sir Mervyn King's insistence at his recent Inflation Report press briefing that the Bank still has ammunition left to cope with a further deterioration in the economic outlook.

MPC member Adam Posen has repeatedly voted for a £50bn increase in quantitative easing, to prevent the UK sliding into a Japan-style slump.

Weale said the decline in oil prices since the latest bout of market chaos had been a "silver lining" in recent weeks. "They could point to inflation lower than I had feared next year and to a substantially reduced risk of the sort of second-round effects on wages, which have so concerned me over the last few months," he said.

He also issued a warning that the UK's buy-now-pay-later economy will have to rebalance, to avoid severe tensions in the years ahead.

"Eventually people and particularly old people will be disappointed with their living standards … this will create pressures to transfer resources from young people to old people reducing the consumption of the former to support the latter … So either young people or old people will find that they cannot consume as much as they might hope." He warned that a legacy of "under-saving" meant that households may need to cut consumption over their lifetimes by up to 10% and save more for their futures.