BRITISH CHANCELLOR of the Exchequer George Osborne has insisted he will not slow down the pace of spending cuts in the United Kingdom over the next four years even if the economy slows down. The Bank of England could print more money and keep interest rates low if a stimulus was needed.
The Bank of England’s monetary policy committee yesterday decided not to follow the lead of the US Federal Reserve – which announced a new round of purchases of government debt with printed cash to boost activity in the US economy – and it kept its base interest rate at a record low of 0.5 per cent. Up to now, the Bank of England has used £200 billion worth of quantitative easing to stimulate the economy.
Recent official statistics for the UK economy showed it grew by 0.8 per cent between July and September – though the local rate in Scotland, Wales and Northern Ireland is judged to be lower – which was much faster than expected and increased hopes that the UK could avoid a double dip recession, though January’s introduction of higher VAT rates and the impact of spending cuts will act as a damper in the New Year.
Most, but not all, economists in the City of London yesterday said that they did not expect the Bank of England to raise interest rates until well into the first three months of the year, despite higherthan desired inflation figures, while a decision about whether to inject more money into the system would wait until February’s publication of the bank’s quarterly inflation report.
The Bank of England last night did not issue a statement to explain its decision to keep interest rates at 0.5 per cent, but economists believed that its move was an indication that a majority on its Monetary Policy Committee believed the recovery was on track to keep inflation close to the 2 per cent target in the medium-term, or that the situation was so uncertain that no judgement could be made about whether the biggest threat was inflation or stagnation, where low growth is combined with high price rises.
Mr Osborne, who appeared before a Commons committee yesterday, was criticised by its Conservative chairman, Andrew Tyrie, for exaggerated claims that his recent budget was progressive – affecting the rich more than the poor, despite strong declarations from the respected independent think tank the Institute of Fiscal Studies that it would have exactly the opposite effect, particularly after 2012.
Equally, Mr Tyrie was unhappy that Mr Osborne had exaggerated the dangers facing the UK earlier this year by saying that the country was close to bankruptcy. Mr Osborne should be more statesmanlike now that he holds senior political office, said Mr Tyrie.
However, the chancellor was unrepentant: “The situation I found myself in May this year was incredibly serious for this country. The largest bond investor in the world said UK gilts were a no-go area.”
Mr Osborne said government departments, particularly social security, would face much tighter curbs after next March’s budget.
