IMF urges more action from Bank of England on flailing economy as new governor prepares for tenure

Senior change: Canadian Mark Carney succeeds Sir Mervyn King as governor of the Bank of England this July

The Bank of England was yesterday urged to do more to bolster the economic recovery just months before the arrival of new governor Mark Carney.
The International Monetary Fund said cutting interest rates to 0.5 per cent and pumping £375billion into the economy through quantitative easing was not enough – even with inflation stubbornly above target. It said the Bank should offer guidance over how long rates will stay at rock bottom levels and use money created through QE to buy private sector assets as well as government debt to stimulate demand.
The recommendation came as the IMF slashed its UK growth forecasts for this year and next by 0.3 percentage points to 0.7 per cent and 1.5 per cent.

It marked the biggest downgrade to any major economy over two years although Britain will still grow faster than Germany, France, Italy and Spain.
The Washington-based Fund urged the Bank and the Treasury to act – warning that George Osborne was ‘playing with fire’ by pressing ahead with his austerity plans.
‘In the United Kingdom, other forms of monetary easing should be considered, including the purchase of private sector assets and greater transparency on the likely future monetary stance,’ it said in its latest World Economic Outlook.
‘Greater near-term flexibility in the path of fiscal adjustment should be considered in the light of lacklustre private demand.’
The Treasury refused to change course on its tax and spending plans and said ‘we are slowly but surely fixing this country’s economic problems’.
But it is thought the Bank may take more aggressive action to kick start the recovery – particularly after Carney succeeds Sir Mervyn King as governor in July.
In the Budget last month, the Chancellor said the Bank should focus on boosting growth and jobs and not just targeting inflation in a sweeping overhaul of its powers.

 

But it is feared that even with a more flexible remit, high inflation will limit what Carney can do. Figures from the Office for National Statistics yesterday showed inflation remained stuck at 2.8 per cent in March – higher than any other major European country. Inflation has been above the 2 per cent target for more than three years and looks set to top 3 per cent this summer.