Opinion

Bank of England Governor Claims Action Needed to Save UK Economy

With the residential property market starting to see signs of recovery, it is easy to slip into a false sense of security, but the Bank of England governor has made it clear that failing to take further action is not an option. On Wednesday, February 20th it emerged that Sir Mervyn King and other members of the Monetary Policy Committee (MPC) voted for more stimulus to be introduced to boost the UK economy. This comes after official data showed economic shrinkage was worse than expected in the final quarter of 2012, standing at a 0.3 per cent contraction.

With the UK on the brink of a triple dip recession, Sir Mervyn led the call for action at the beginning of February. Minutes of this month's interest rate meeting showed that the governor and MPC members David Miles and Paul Fisher sought a further £25 billion in quantitative easing (QE). However, they were outvoted six to three, with the rest of the MPC claiming more targeted measures would be more appropriate, as the Bank's latest quarterly forecast showed inflation was set to rise and would remain above-target for another two years.

Nevertheless, Sir Mervyn and his two colleagues believed there was a strong case for QE, claiming it was important to "avoid potentially lasting destruction of productive capacity and increases in unemployment". This sentiment wasn't supported by the rest of the MPC and they asserted that other policy measures would need to be considered to boost the flow or credit, increasing demand and supply in the economy.

During the meeting, MPC measures also discussed the Funding for Lending Scheme and the possibility of increasing credit from non-bank lenders. While the property market in the UK is starting to find its feet once again - albeit tentatively - another recession will threaten any stability. The government has identified that it must do what it can to stimulate activity in the sector and has introduced several schemes to help people get on the property ladder, but if the UK's economic position doesn't improve, more may be needed.

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