Further quantitative easing should be introduced as soon as possible to offset the fiscal tightening in the Government’s upcoming comprehensive spending review, according to Ignis Asset Management.
Chief economist Stuart Thompson says the Bank of England stands between fiscal austerity and recession. He says: “It is time for plan B.”
The bank last week held the bank rate at 0.5 per cent and decided against introducing further easing.
Thompson says: “If I read Mervin King correctly, I think he would like to introduce further QE in November but he will probably wait to see what the impact of the VAT hike is.
“Part of our thinking for February is that the Federal Reserve is more likely to make its move in January rather than in November but, in our minds, both should do it as soon as possible.”
Thompson says the Government is being forced into rest-raining the “unproductive public sector” but that the comprehensive spending review will “rapidly slow down what is nearly half the economy”.
He adds: “It is up to the Bank of England to encourage activity in the other half, which is the private sector and the best means of doing that is more quantitative easing.”