The announcement by the Bank of England of £75billion of Quantitive Easing today was greeted with caution by local Ipswich Tory, Ben Gummer MP. Commenting on his twitter feed, Mr Gummer said that he was concerned about the inflationary risks of QE, reminding a local journalist that it was not a policy that could be followed forever, as the Bank treads a fine line between putting liquidity into the market and not stoking inflation.
Mr Gummer was supported by former councillor and one time Chairman of Ipswich Tories, Gavin Maclure, who recently attacked George Osbourne’s new policy of ‘Credit Easing’ on the same grounds; that a loose monetary policy will lead to inflation.
Mr Gummer and Mr Maclure are both right, in normal circumstances. Inflation is caused by a loose monetary policy and QE was responsible for the rampant inflation in Weirmar Germany and Zanu-PF Zimbabwe. In the current circumstances however, with a large Franco-Belgian bank falling apart today, inflation is not the biggest risk in the economy.
Mr Maclure might no longer be an evangelist for the Cameron cause, but the Prime Minister had it absolutely spot on yesterday when he told the Tory conference in Manchester that the UK is in a debt crisis; he was also right when he said that you don’t get out of a debt crisis by increasing the speed you build your debt.
One of the most damaging things that could happen to the UK right now would be either a downgrade of our credit rating, or an increase in commercial interest rates, which would result from a downgrade. The Government and the Bank of England are doing everything they can to avoid that happening.
UK growth has been 0% over the last 9 months, now we’re back to QE and all the levers of the economy have been pulled hard. Will it work? Well Paul Geater had an interesting article last week which implied that our politicians might not really have much effect on the economy in a globalised world. Ipswich Spy think he is exaggerating the case, but is not entirely wrong. The Bank of England, however, is entirely right to take this action.
One option we would like to see though, if the Government wanted to boost consumer spending and economic growth, why not send us all a check for £1000 instead, everyone would immediately deposit their cheque with the bank, which adds capital to the banks, as well as then boosting the economy as people spend their money. It would be inflationary, but it might be worth it for the benefit it would give.