The governor for the Bank of England, Mervyn King has said that the financial crisis could be the worst the UK has seen—ever. He spoke after the Bank said they would approve further quantitative easing (QE) , which would pump £75 billion into the economy.
Since the 1930s or Ever
He said, “This is the most serious financial crisis we’ve seen at least since the 1930s, if not ever.”
Though the Chancellor, George Osborne, had previously criticized the use of QE, he has now said it was the right move. The bank put £200 billion into the economy under the Labour government through the purchase of assets like government bonds to try and increase commercial lending.
The Chancellor also agreed with Mr. King’s statement on how severe the crisis was. For months, the Monetary Policy Committee (MPC) has been divided over whether to approve the use of QE, use an increase in interest rates to try and get rid of the rising cost of inflation, which is more than double the Bank’s target, or to do nothing and leave things as they have been. Only Adam Posen has pushed for further QE.
A Changing World
Mr. King said that the world had changed over the last three months and new policies would have to be created to deal with it effectively, saying that the economy was not growing quickly enough and further QE could be necessary. Last week, the UK economic growth for the second quarter of this year was downgraded to 0.1% from 0.2%.
Due to this, the Bank gave a reason for its viewpoint on QE, saying, “The deterioration in the outlook has made it more likely that inflation will undershoot the 2% target in the medium term.”
Despite Chancellor George Osborne’s criticism of the move in 2009 when he was in opposition, he supported the new round of QE, claiming as his reason that the government inherited “a pretty desperate fiscal position” and had little choice. Mr. Osborne suggested that the UK was “using all the tools available” to solve the issues presented by the economy in the light of the eurozone debt crisis and the issues worldwide. He announced last week that the Treasury would consider “credit easing” to underwrite loans to struggling small businesses and help boost the economy.