From the TUC

QE: welcome but more needs to be done

09 Feb 2012, by in Economics

The Bank of England, as was widely expected, is launching another round of QE in an effort to stimulate the economy. On a day when industrial production and the trade deficit provided some good economic news the Bank notes that:

Some recent business surveys have painted a more positive picture and asset prices have risen. But the pace of expansion in the United Kingdom’s main export markets has also slowed and concerns remain about the indebtedness and competitiveness of some euro-area countries. A gradual strengthening of output growth later this year should be supported by a gentle recovery in household real incomes as inflation falls, together with the continued stimulus from monetary policy. But the drag from tight credit conditions and the fiscal consolidation together present a headwind. The correspondingly weak outlook for near-term output growth means that a significant margin of economic slack is likely to persist.

The Bank is therefore hopeful that falling inflation will provide a boost to incomes and consumption but worried about the prospects for continued growth through exports and the ‘head winds’ of ‘fiscal consolidation’ and ‘tight credit conditions’.

Whilst there isn’t much that the Bank can do about the Government’s fiscal policy, there may be more it can do to help alleviate tight credit conditions.

As last week’s money and lending showed the UK appears to be caught in a second credit crunch. Lending to non-financial firms is falling and the money supply numbers look extremely weak.

Against the backdrop of an existing QE programme of £275bn these numbers are especially concerning.

Last week the TUC published a report on how the banking sector is currently failing to support the real economy.  MPC member Adam Posen, speaking at a TUC seminar, called for more active policies to support SME lending and ensure that credit flows into productive business.

Whilst the TUC welcomes that the Bank is taking active steps to support demand, we worry that QE, in its current form, won’t be enough to get the economy moving strongly again.

The Government has been talking about ‘credit easing’ for almost six months now but with little action whilst Project Merlin has come and gone (to seemingly little effect), it’s time for the Government to get serious on this agenda.

3 Responses to QE: welcome but more needs to be done

  1. Bill Kruse
    Feb 9th 2012, 2:13 pm

    Little hope of any goverment getting serious about tackling the people who financed it into power. We need to create our own money and leave the banking industry out of the loop. Bristol has just announced the Bristol pound, a local currency designed to replace the standard legal tender pound in the local economy and so keep wealth in the community. As with the others of its kind, it’s a start but it’s not enough. New money needs to be created into the economy and it needs to be done in such a way as to not devalue the existing currency. Creating local currencies from scratch, not merely replacing the existing currency pound for pound with local versions, is the way out of recession and away from the tyranny of the existing banking system.

  2. Gareth
    Feb 10th 2012, 5:14 pm

    “so keep wealth in the community”

    Protectionism: coming to a town near you!

    A common medium of exchange is completely essential to making the UK a vibrant, dynamic, open economy.

    Creating enough new currency to devalue the old currency and spur new spending and investment is exactly what the Bank of England needs to do. That was the lesson of the Great Depression. (When there was a wave of scrip creation in the US too. It’s a classic sign of tight money.)

    You can well argue that QE is an ineffective way to do that, and that we need more effective monetary policy, e.g. a target for the level of nominal GDP, or the price level, or specific currency devaluation.

    http://centreforum.org/index.php/mainpublications/274-lessons-from-the-1930s

  3. Conservative Home ‘shoot’ the Health Secretary, Harry Potter abandons the Lib Dems and Cameron keeps losing PMQs: political blog round up for 4 – 10 January | British Politics and Policy at LSE
    Feb 11th 2012, 10:40 am

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