In the last four years the Bank of England has kept UK interest rates at an all time low of 0.5% and pumped a staggering £375bn into the economy. As a result savers have lost out and companies have been forced to top up pension funds rather than using spare cash for growth investment. The banks quantitative easing policies have been
described as a “monumental mistake” and are being pressured by Thread-needle Street to increase interest rates.
Restless economists are calling for more action from the UK central bank. In response, the new governor, Mark Carney declared the bank´s policy options are far from exhausted and suggested he would take aggressive action to ensure “escape velocity,” in order to avoid a triple-dip recession. Speaking at the World Economic Forum this
week, Carney said, “There remains considerable flexibility – which includes the use of communications, which includes the use of unconventional measures.”
Can Carney save UK economy?
Carney was handpicked for the role as Governor of the Bank of England by George Osborne. His reputation soared after he managed to avoid the global crash that gripped the world during his tenure as the governor of the bank of Canada. He has now been handed the task of reviving the UK economy and overturn the mess his predecessor Sir
Mervin King appears to have left behind.
A report presented in the House of Commons this week confirmed that the central banks QE program has squeezed the incomes of families and individuals and restricted companies from investing because the law regulates they have to top up pensions in the event of a shortfall. In effect, QE has had the opposite effect of what the bank supposedly intended. And this in a country that is supposedly a democratic society!
Pensions expert, Ros Altmann said the banks policies devalued the incomes of pensioners and has hampered spending power. The bank themselves admitted that “everybody is feeling the pinch” because inflation is running at a higher rate than the increase in wages. The bottom line is QE drives up prices which subsequently reduces
demand. Altmann added that without quantitative easing the “the economy will be freer to grow than if we do.”
If Carney is to rescue the UK economy he has to reverse the status the policies in the last four years have left. Instead of reviving the UK economy by keeping interest rates at an all-time and preventing the financial growth of companies and individuals the Bank of England has prolonged the UK recession.