GO
Loading...

More QE in UK Could Harm Economy: Ex-MPC Member

More monetary stimulus by the UK could lead to more inflation and not much economic growth, a former member of the Bank of England's Monetary Policy Committee told CNBC Thursday.

Sharon Lorimer

"It won't be particularly effective and could do harm. It has already been taken to extreme levels. The policy in 2009 of quantitative easing was effective because it was trying to stabilize a very difficult situation in the economy and unconventional measures like QE are best when deployed with shock and awe.

"It won't address the key issue which is high inflation. This is squeezing disposable income and consumer spending and that's one of the main reasons we are seeing weaker growth now, the inflationary question of QE is important," Andrew Sentance, former MPC member, Bank of England told CNBC.

Earlier this week minutes from the last MPC meeting, held earlier this month, showed that the committee had considered further quantitative easing, with most members feeling that an additional round of monetary easing of around 50 billion pounds ($78 billion) will be necessary in the coming months.

The MPC voted 8-1 against more monetary stimulus at the September meeting.

Sentance argued that the MPC was now facing credibility issues as it fought to control rising inflation in the UK.

"It's votes that count at the MPC and their mandate is an inflation target of 2 percent and they have consistently overshot it and consistently underestimated some of the external inflationary pressures," he said.

Wednesday saw the US Federal Reserve announce its latest attempt to boost the flagging US economy.

The much-anticipated 'Operation Twist' package will direct $400 billion from the sale of Treasurys of three years and less in duration and invest it in those of 6 to 30 years maturity.

Markets reacted disappointedly to the news compared to the last two rounds of QE proper, where the bank printed more money in an attempt to jump start the economy.

There was further gloom from the International Monetary Fund (IMF), which released its economic forecasts for countries around the world.

The IMF warned that sluggish growth would be almost universal and cut forecasts for most developed countries. Britain was warned that its austerity program alone would not be enough to stimulate the economy and prevent another recession.

Sentance reiterated this view saying the economic problems had been dealt with in the short term but longer term economic policy must now be implemented.

"Monetary policy must shift away from an emergency setting. It may be difficult to have fiscal tightening but backtracking can be very painful for governments," he said.

"Monetary policy makers should have been firmer about the limits of what monetary policy can do and they should have been moving towards medium term agenda. If we're looking to support growth they need to make a better climate for business and reduce regulation and the supply side has not had enough focus in the policy mix over the last year or so," he added.