King: No govt pressure on quantitative easing

The eurocrisis casts a long shadow over UK economic policy.
The Bank of England vote is expected to be very close

By Ian Dunt

The government did not place any pressure on the Bank of England to release more money into the economy, Mervyn King has insisted.

The comments come after a new round of quantitative easing totalling £75 billion was announced.

"Neither any member of this government or the previous government ever put pressure on the Bank of England to make a monetary policy other than the one we wanted to make," the Bank of England governor told Sky.

"It's pretty amazing if anyone really believes this was taken as a result of pressure."

Politically, the move casts doubt on George Osborne's economic strategy, with opponents quickly highlighting a quote from 2009 in which he branded quantitative easing as "the last resort of desperate governments when all other policies have failed".

Shadow chancellor Ed Balls said: "The government's reckless policy of cutting spending and raising taxes too far and too fast is demonstrably not working. But rather than change course the government has spent the last week urging the Bank of England to step in and essentially print more money.

"The Bank of England has been left with no choice but to step in and try to offset the contractionary effects of George Osborne's Budget plans."

Mr Osborne welcomed the move while talking to reporters this afternoon, saying: "It is a response to the deterioration in the international economy and it is also a response to the severe strains in the eurozone.

"I think this is a positive move for the British economy. The evidence shows that it will help keep interest rates down and boost demand and it will be a help for British families."

Mr King insisted today that the move was a response to changing world conditions.

"People can take different views," he said.

"The view of the committee is very clearly and solidly that at present the amount of money in the economy is growing too slowly to allow a recovery.

"When the world changes, we change our policy response."

While some policymakers wanted to wait another month for further inflation and growth forecasts, many were convinced the outlook is bleak enough to warrant another injection of money into the system.

But there are concerns that instead of boosting confidence, as had been intended during the original £200 billion round from March 2009 to February 2010, the move could in fact contribute to a sense that policymakers are becoming increasingly desperate in the face of unremittingly bad economic news.

The Bank of England kept interest rates at 0.5%, as expected.

Even with inflation about to hit five per cent, the mood at the Bank has shifted from a focus on raising interest rates to one on further easing, due predominantly to the slump in the US and continuing crisis in the eurozone.

UK economic growth was revised downwards yesterday from 0.2% to 0.1%. Some analysts believe the country is already back in recession.


Load in comments
Politics @ Lunch

Friday lunchtime. Your Inbox. It's a date.