Bloomberg News

U.K. Ministers Urge Stimulus as BOE Sees Likelihood of More QE

September 21, 2011

Sept. 21 (Bloomberg) -- U.K. ministers pressed the case for more stimulus measures to boost the economy as Bank of England officials said an expansion of their 200 billion-pound ($314 billion) bond purchase program is “increasingly probable.”

Energy Secretary Chris Huhne said the government should speed up capital spending after the International Monetary Fund lowered U.K. growth forecasts and said the government may need to consider delaying some of its fiscal squeeze to narrow the budget deficit. Business Secretary Vince Cable repeated a call for the central bank to expand beyond its government bond purchases, known as quantitative easing.

“The Bank of England could do what the Americans did and buy up corporate bonds or they could buy up bundles of SME loans,” Cable told a fringe event last night at his Liberal Democrat party’s annual conference in Birmingham, central England. “That’s an idea that I think is an excellent one.”

Minutes of the bank’s Sept. 7-8 Monetary Policy Committee meeting published today showed the panel voted 8-1 to maintain the current size of its bond plan and were unanimous in keeping the benchmark rate at a record low of 0.5 percent. Even so, most policy makers said it was “increasingly probable that further asset purchases to loosen monetary conditions would become warranted at some point,” according to the minutes.

No Objections

Chancellor of the Exchequer George Osborne signalled Sept. 11 he had no objections to the Bank of England buying private- sector assets in an expansion of the bond program. The bank’s governor, Mervyn King, is free to request an extension, Osborne said at a Group of Seven meeting in Marseille, France.

“The arrangements put in place by my predecessor are arrangements that in practice and in spirit I would intend to follow,” Osborne said.

The Treasury said it had no comment on today’s Bank of England minutes.

U.K. gross domestic product will rise 1.1 percent this year and 1.6 percent in 2012, the Washington-based IMF said in its World Economic Outlook yesterday, cutting previous projections of 1.5 percent and 2.3 percent respectively. U.K. consumer confidence fell to a four-month low in August as Britons grew more pessimistic about the outlook for the economy, Nationwide Building Society said today.

“We’ve got to be creative and imaginative about bringing forward more spending,” Huhne told another fringe event in Birmingham. He said the option of “pump-priming” the economy by increasing expenditure is “blocked off to us” because of “the scale of our budget deficit.”

Deficit Widens

Britain had its biggest budget deficit for any August since modern records began in 1993, the Office for National Statistics said in London today, as government spending jumped and income- tax receipts declined. The shortfall of 15.9 billion pounds, which excludes government support for banks, compared with 14 billion pounds a year earlier.

Deputy Prime Minister Nick Clegg, the Liberal Democrat leader, said Sept. 14 the government was going to “unblock” 40 infrastructure projects in an effort to spur growth. He said the coalition wanted to “put its foot on the accelerator.”

BBC television reported yesterday evening that ministers were discussing increasing spending on projects such as roads, rail and broadband by as much as 5 billion pounds, without saying where it got its information. The deficit between April and July was 4.6 billion pounds less than previously estimated, giving Osborne room for maneuver should he wish to add stimulus. The Treasury denied the report.

‘Stick to Our Plans’

“I don’t recognize the numbers involved or the process as described,” the Liberal Democrat chief secretary to the Treasury, Danny Alexander, said in an interview with BBC Radio 4’s “Today” show this morning. “We’re not changing our spending plans.”

Alexander said the message he had taken from the IMF report yesterday “is we should stick to our plans.”

“What we need to have across the world is countries taking action that’s appropriate to their own circumstances to deal with the problems that they face,” Alexander said. “We have a great asset; we have clear spending plans and we’re sticking to them.”

The fiscal target the government is working to “is the structural current balance,” Huhne said. “It is current not capital spending. That is an important distinction.”

--With assistance from Jennifer Ryan and Scott Hamilton in London. Editors: Eddie Buckle, Andrew Atkinson

To contact the reporters on this story: Robert Hutton in Birmingham, England, at rhutton1@bloomberg.net; Thomas Penny in Birmingham, England, at tpenny@bloomberg.net

To contact the editor responsible for this story: James Hertling at jhertling@bloomberg.net.


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