One leading figure of the Bank of England has called for new steps to spawn activity within the economy to prevent a double dip recession. Inflation is above 3 per cent, growth is inching just barely above 1 per cent, and unemployment is crawling towards 8 per cent. There was confidence in the ability of the economy to stand back on its feet again after the Base Rate was lowered to 0.5 per cent months ago, and, through quantitative easing, almost 200 billion pounds were pumped in. The operative word within that notion is “was”.
Now, Adam Posen, a member of the Monetary Policy Committee that sets interest rates, thinks “heavy duty” action may need to be taken to avoid the double dip. He commented on a possible “plan B” to reviving the economy, saying: “Because we have only done quantitative easing up till now, our plan B, or our next page in my opinion, is to shift into heavy duty credit easing.”
This is possibly going to involve buying corporate bonds, in an attempt to drive up prices. Posen mentioned credit easing could be used to target specific sectors where it wants to reduce the cost of borrowing.
While inflation sits above 3 per cent, other members of the MPC believe this will slightly decrease by the end of the year. Posen believes the threat of inflation could hamper any more surges in the economy. He commented on this, saying: “To the degree inflation can be explained as being due to a shock, policymakers have some latitude in their response. If policymakers can credibly say inflation is not being passed through to general rises in inflation, the bank need not overreact.”