The Bank of England has decided against a further round of economic stimulus, for now.
At the latest meeting of the Monetary Policy Committee today, the Bank Rate was kept on hold at 0.5% and there was no extension to the £375bn asset purchase programme of quantitative easing.
This decision followed a call from the Organisation for Economic Co-operation and Development (OECD) yesterday, suggesting the Bank should consider further QE if economic growth remains weak.
The latest figures show that the size of the British economic shrank by 0.3% in the final quarter of last year.
Whilst these figures could be revised upwards during the coming months, they do raise the prospect of a ‘triple dip’ recession, should the first quarter of this year also deliver negative GDP.
Here at Informed Choice, we think the Bank of England needs to do more to help economic recovery.
Further QE probably isn’t the right answer.
It is very difficult to tell how effective the existing level of QE has been to date. Without it, the recession could have been much deeper and longer.
It is also difficult to understand what impact QE has had on price inflation, which remains stubbornly above the government target of 2% for the Consumer Prices Index.
What is likely to have a bigger impact on economic recovery and growth is money finding its way into the real economy.
Giving money to the banks – which simply use it to improve their capital positions, rather than increase lending to businesses and individuals – is a failed strategy, as long as the banks have this commercial discretion to hoard rather than lend.
A package of economic stimulus measures which put cash into the hands of consumers, to spend on goods and services across the UK, would have a much more immediate and meaningful impact on the UK economy.
Photo credit: Flickr/howzey
