In These New Times

A new paradigm for a post-imperial world

UK economy may need more stimulus, says Bank of England’s Martin Weale

Posted by seumasach on November 16, 2010

The “UK economy” is largely a fiction, a spending bubble which is coming to an end- it is already beyond stimulus and requires total reconstruction from the base. QE will be directed at purchasing the kind of “assets” that RBS is desperately hawking at knockdown prices and UK government bonds which China will likely be minded to ditch after Cameron’s comments in Beijing. As before the money will spread around the world in search of higher interest rates and returns in a final frenzy of parasitism.


16th November, 2010

The “most likely” outcome at the end of 2013 is that the UK’s real gross domestic product will remain about 6pc below its pre-crisis trend, said Martin Weale, a member of the Bank’s Monetary Policy Committee (MPC).

This situation would indicate the economy has spare capacity – the headroom companies have to restart mothballed plants or take part-time workers back to a full week – he argued.

“In such circumstances, it would be right for the Monetary Policy Committee to do what it could to stimulate the economy further, provided that such a stimulus were consistent with meeting the inflation target,” Mr Weale said.

“We should never forget that spare capacity amounts to a waste of resources and that the associated unemployment is a source of misery.”

His comments raise the prospect of more stimulus coming in the form of an expansion of the Bank’s £200bn QE programme, whereby the Bank effectively prints money to make asset purchases.

But Mr Weale conceded: “The MPC cannot be sure that there is as much spare capacity as my calculations imply, and has to be sensitive to the fact that inflation in September was more than one percentage point above its target.”

Bank policymakers recently split three ways as to whether to provide more stimulus or to tighten conditions, a divide expected to be repeated in Wednesday’s minutes for the MPC’s November meeting.

At the “hawkish” end of the spectrum Andrew Sentance has repeatedly voted for rate rises now to avoid them having to be raised steeply in the future to counter inflation.

Figures out on Tuesday are expected to show that consumer price inflation (CPI) remained above the 3pc ceiling for an eight month in October, which would mean the Bank’s Governor Mervyn King has to write another letter of explanation to the Chancellor.

However, Mr Sentance’s colleague Adam Posen believes that the UK’s economic recovery is still shaky enough to require a boost through more QE.

The MPC “has to chart a course between the Charybdis of recession and deflation and the Scylla of excess inflation”, said Mr Weale, adding that the majority of the committee does not currently “see a compelling case either for slackening or for tightening policy”.

“Inflation over the next few months may well rise further, even if a subsequent decline is expected,” said Mr Weale, whose comments suggested he himself did not vote for either a rate rise or more QE at the November meeting.

“I certainly worry about the effect on inflationary expectations of introducing additional monetary stimulus.”

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