MORE quantitative easing could be in the pipeline for the UK, after Bank of England governor Mervyn King left the door open for the programme dubbed “QE2”.
Following hot on the heels of the Federal Reserve’s notably dovish statement on Tuesday, the Bank yesterday painted a gloomy picture of growth prospects and hinted at even looser monetary policy to come.
“We’re not out of tools; if we need to we can carry out more asset purchases,” King told reporters. “The committee will have to decide if it wants to do that and if so, when. Last week we opted not to do that. But there’s no technical reason [why] we cannot do that.”
The Bank will not emulate the Fed in pledging to hold down interest rates into the near future, however. “To lock in monetary policy now for two years does not seem to me particularly sensible,” King said.
King added: “I think the biggest risk to the downside comes from our net trade position, our exports.”
Moving the British economy towards exports is a priority for the Bank, as well as the government, with the squeeze on domestic spending showing no signs of relaxing.
Yet the rebalancing is not going to plan. The UK’s trade deficit jumped from £4bn to £4.5bn in June, figures revealed this week. The visible trade gap with countries outside the European Union soared from £5.1bn in May to £5.7bn in June.
A devalued pound should boost exports. However, liberal think tank Centre Forum has criticised “the failure of QE to help anyone other than government, big business and the already wealthy”.
“For huge areas of the economy, hundreds of billions of pounds have been created to no discernible effect,” said Giles Wilkes – previously of Centre Forum, and now special adviser to business secretary Vince Cable.
“Bank lending has not increased, and spending in the economy has stayed weak,” Wilkes said, instead proposing a “credit risk fund that makes investments aimed at specific failures in financial markets.”
Cable has recently called for “more imaginative” forms of monetary stimulus – “not just acquiring government securities”.