‘BoE can’t do all the heavy lifting’: Pressure mounts on Chancellor to act on economy

(Photo by Dan Kitwood/Getty Images)
(Photo by Dan Kitwood/Getty Images)

The Centre for Economics and Business Research has challenged Chancellor Philip Hammond to act faster on the economy following the Bank of England’s stimulus measures announced earlier today.

The Bank of England has supported the widely expected interest cut to 0.25 per cent with a £60bn boost to its quantitative easing programme.

It has also launched a “Term Funding Scheme” to provider cheaper funding for banks and to ensure the rate cut passes through to households and businesses.

CEBR director Scott Corfe says this looser monetary policy is welcome, but notes the hit to consumers in the form of falling annuity and savings rates.

He says: “Be under no doubt that this loosening has lots of winners and losers.”

But he adds the package of measures will not be enough by itself to lift the economy following Brexit.

Corfe argues what the economy needs is a boost to Government spending and tax cuts.

He says: “The lack of a pro-growth Emergency Budget following the referendum could prove to be a costly mistake, and waiting until the Autumn Statement to announce policy changes could make recession inevitable.

“The Bank of England is not in a position to do all the heavy lifting until then.”

In a letter to the Chancellor accompanying the MPC decision, Bank of England governor Mark Carney said the move to a “new equilibrium” post-Brexit vote will require “real” adjustments, and he warns many “are not the gift of monetary policymakers”.

He adds: “Nonetheless, monetary policy can still play a role in smoothing part of this adjustment by appropriately balancing the forces acting to push inflation above the target with those expected to push activity below the economy’s new path for potential output.”

Hargreaves Lansdown senior economist Ben Brettell says: “Carney has rightly pointed out that monetary policy can only do so much.

“This lays the gauntlet down for the Chancellor to apply some fiscal stimulus when it comes to this year’s Autumn Statement.”