THE Bank of England could do more to “underwrite” a British recovery by putting money behind key infrastructure projects, the director-general of the British Chambers of Commerce (BCC) has claimed.
John Longworth said he is more hopeful of such a “pragmatic” approach being adopted following the appointment of Canadian central banker Mark Carney, who is due to replace Sir Mervyn King as governor of the Bank of England in July.
Longworth, whose organisation serves some 104,000 UK businesses, said: “Why should the Bank not underwrite infrastructure development? It would help to de-risk such projects.
“I know the idea is slightly off-piste, but it just needs a careful and considered view. What are the chances of the Bank getting its fingers burnt? If the infrastructure development eventually pays for itself, the Bank gets a return on its investment and helps create a vibrant economy.”
Longworth became director-general of the BCC in September 2011, and is also a non-executive director at Co-operative Group and Vimto maker Nichols.
The former Asda and Tesco director acknowledged that the Bank had helped, along with the Treasury, to initiate the Funding for Lending scheme last autumn to free up bank lending to businesses and mortgage-seekers, but he said more needed to be done on infrastructure development and the Bank should take a more hands-on role given its financial reserves and reputation.
Longworth said: “It’s a very low-risk thing to do. If you don’t get economic growth, the risks are much higher for everybody. It would be a more proactive, interventionist role. But if you don’t get growth, and the bond markets eventually react to that, the Bank will find it hard to borrow. It is in its own interests to do something about it [infrastructure spending].”
The BCC, whose members employ more than five million people across small, medium-sized and large companies, is understood to have taken heart from Carney’s appointment.
The current governor of Canada’s central bank suggested last month that it might be best for the Bank of England to target economic output rather than its more restricted traditional role of trying to keep inflation at 2 per cent in the medium term.
Longworth added: “I was pleased to hear that. I think there will be a more pragmatic approach [to stimulating economic growth] in future.”