Use QE cash to build new houses, Carney told

NEW Bank of England governor Mark Carney, who starts work today, should swap bond-buying for more direct intervention in the British economy, a think tank claims.
Mark Carney urged to widen his vision for using Bank cash. Picture: GettyMark Carney urged to widen his vision for using Bank cash. Picture: Getty
Mark Carney urged to widen his vision for using Bank cash. Picture: Getty

A report published today by the New Economics Foundation (NEF) says quantitative easing (QE) is no longer supporting the recovery, while other measures such as Funding for Lending and the UK government’s “Help to Buy” scheme are threatening to create another housing bubble.

NEF is calling for Carney to be given a wider remit than previous governors and adopt “strategic QE” – investing in home building and energy efficiency, infrastructure and small business lending through targeted bonds.

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Tony Greenham, head of finance and business at NEF, said Carney’s arrival was the perfect opportunity to review the remit of Britain’s central bank.

“It’s time for the Old Lady of Threadneedle Street to get some new clothes,” he said. “Our research found that the lines between monetary and fiscal policy have already been blurred, but measures like Quantitative Easing and Funding for Lending are not providing the investment boost our economy clearly needs.

“Strategic QE can enable the Bank of England to maintain independence and control over inflation whilst more effectively supporting the government’s economic objectives.”

Today’s report says Britain is caught in a “QE trap”. While the government has saved £55 billion due to QE lowering interest rates on government debt, wages and most pension funds have suffered in real terms as a result.

To make things worse, NEF says that those who have got richer as a result of QE are not investing due to low confidence in the UK economy and future demand for goods and services.

Therefore the bank needs to inject its money directly where it is needed. NEF says a £10bn investment in housing through strategic QE would deliver around 60,000 new homes, with each house creating 1.5 direct jobs and another three jobs in the supply chain.

And Funding for Lending would be more effective if it loaned money to a “British Business Bank” set up to support small firms instead of working through the established commercial lenders, the think tank says.

Its report comes as research shows European banks are in for a slow recovery.

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Ernst & Young’s Eurozone
Financial Services Forecast found that the pace of deleveraging in the European economy has not slowed. That means the outlook for lending is worse than expected.

It says business loans are forecast to hit a six year low of €4.5bn (£3.8bn), personal loans will shrink to €595bn, a seven-year low, and there will be £46bn less residential mortgage loans in the market than last year.

Banks continue to deleverage at the same sharp pace as in 2012, shrinking their total assets by another €850bn this year, the accountancy firm claims.

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