Experts say Bank may have to pump more money into economy

Published on Sunday 29 August 2010 18:43

THE controversial programme of quantitative easing may have to be restarted to ensure that the economic recovery is sustained, according to an influential business group and a senior banker in the Bank of England.

• Charles Bean warns the UK recovery remains fragile

At the end of a week that saw an upward revision in the growth rate of the UK economy, the British Chamber of Commerce (BCC) said the Bank of England should consider pumping more money into the economy to offset the impact of the coalition government's austerity measures that critics fear could push the UK's economy into a double dip .

The business group said the emergency Budget strategy would eventually see the UK economy emerge "leaner and fitter", but warned a clear growth strategy was required from the Bank of England to be implemented alongside the government's measures.

According to BCC economists, this strategy should include re-implementing the quantitative easing (QE) measures favoured by the previous Labour government - which sees the Bank of England buy up government bonds to increase the money supply - as well as holding interest rates at their current level of 0.5 per cent, where they have remained since March 2009. The BCC's calls were echoed by Bank of England deputy governor Charles Bean, who suggested the QE programmes in the UK and United States had prevented the collapse of the financial markets and further measures might be necessary to prevent the recovery stalling.

Last week, US Federal Reserve chairman Ben Bernanke hinted that US policymakers might have to consider further quantitative easing, amid fears that the world's largest economy could dip back into recession - a development that would send significant shockwaves across the Atlantic.

The chief economist at the BCC, David Kern, said the threat of the recovery being set back was a more serious risk to the UK economy than a surge in inflation, and he urged the Bank's monetary policy committee (MPC) to hold its nerve and not bow to pressure to reduce inflation by abandoning QE and raising interest rates.

Meanwhile, Mr Bean used his appearance at the US Federal Reserve's annual symposium in Jackson Hole, Wyoming, to hint that the quantitative easing policy - which has seen about 200 billion poured into the economy and critics decry as simply "printing money" - might need to be reintroduced.

He said: "The deleveraging process is incomplete, the recovery remains fragile and a considerable margin of spare capacity is yet to be worked off."