King raises prospects of further 'quantitative easing'

The Bank of England may have to step in to unfreeze the economy
The Bank of England may have to step in to unfreeze the economy

By Peter Wozniak

Mervyn King has intimated that the government may have to engage in more "emergency measures" to lubricate the economy, on the day that the comprehensive spending review is announced.

Speaking yesterday, Mr King left open the prospect of the central bank engaging in another round of "quantitative easing".
He said the Bank of England's role was in "smoothing the adjustment process by providing temporary stimulus to demand while the rebalancing takes place, so reducing the risk of inflation falling below the target in the medium term."

The governor of the Bank of England also used his speech in the Black Country to warn countries against retreating into protectionism, saying that might precipitate another crisis in the same mould as the Great Depression.

Intimating the continuing grim state of the British economy, Mr King said: "In the wake of the financial crisis, and the sharp downturn that followed, the amount of money in the economy as a whole - broad money - is now barely growing at all.

"That is restraining activity and pushing down the outlook for inflation.

"Unless the fall in domestic spending coincides with the necessary increase in net exports, the path for the economy will be bumpy."

The governor endorsed the government's policy of targeting the deficit, arguing that times had changed since the steady economic growth of the late 1990s.

Predicting a prolonged hangover from the financial crisis, he added: "The next decade is likely to be a sober decade - a decade of savings, orderly budgets, and equitable rebalancing."


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