Plans to boost loans risk BoE independence

Tim Wallace
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EMERGENCY measures to boost growth blur the boundaries between fiscal and monetary policy and could threaten the Bank of England’s independence, top official Martin Weale warned yesterday.

The new measures include an emergency liquidity facility for banks, and a “funding for lending” scheme which allows banks to borrow cheaply from the Bank of England, as long as they pass those loans on to firms and households.

“I suspect that, pound for pound, the new interventions will do more to support the economy than would deploying the same sums on further asset purchases,” said Weale.

However, he also warned “the distinction between monetary policy, fiscal policy, regulatory policy and macro-prudential policy is no longer clear-cut.”

As a result, if the schemes are continued for an extended period, “policymaking will lose its independence” unless “new frameworks evolve” to manage the policy mix.