Saturday, July 16, 2016

Larry Elliott — Bank of England chief economist calls for big post-Brexit stimulus

The Bank of England’s chief economist has called for a big package of measures to support the UK’s post-Brexit economy, stressing the need for a prompt and robust response to the uncertainty.
Andy Haldane made it clear the Bank’s monetary policy committee would do more than merely cut interest rates from their already record low of 0.5% when it meets in August.
The Bank’s chief economist used a speech to warn that decisive action was required at a time when confidence had been dented by the shock referendum result.
“In my personal view, this means a material easing of monetary policy is likely to be needed, as one part of a collective policy response aimed at helping protect the economy and jobs from a downturn.
“Given the scale of insurance required, a package of mutually complementary monetary policy easing measures is likely to be necessary. And this monetary response, if it is to buttress expectations and confidence, needs I think to be delivered promptly as well as muscularly. By promptly I mean next month, when the precise size and extent of the necessary stimulatory measures can be determined as part of the August inflation report round.”
Ratchet up private debt with low interest and easy credit instead of public debt (increase fiscal deficit).

The Guardian
Bank of England chief economist calls for big post-Brexit stimulus
Larry Elliott

6 comments:

Matt Franko said...

Might mean some QE for UK alternatively Tom...

Tom Hickey said...

QE is basically replacing government securities with bank reserve balances, which is an asset swap that in itself only increases the liquidity of the banking system, which is not an issue in the first place with a lender of last resort function. Along with lowering the interest rate, QE may result in a flattening of the yield curve. Meanwhile, flow of interest income to nongovernment falls.

The assumption is that this will stimulate private borrowing for investment and consumption. So far, that hasn't worked so well. Why would it work any better now?

As we know, it's about the fiscal flows rather than monetary policy jiggling with interest rates. The CB can't do anything about this short of real helicopter money, which is a fiscal add. While this is prohibited in the US, it is allowed in the UK, I believe.

Maybe this is what Andy is recommending. It's not clear from the article that this is his intention. So we'll have to wait and see.

Andrew Anderson said...

While this is prohibited in the US, it is allowed in the UK, I believe. Tom

What is? What about GWB's "stimulus checks"?

Ignacio said...

Maybe Andy is on board with Corbyn 'People's QE', and is what he is advocating at core.

Tom Hickey said...

Maybe Andy is on board with Corbyn 'People's QE', and is what he is advocating at core.

Let's hope, Ignacio.

Michael Norman said...

So this is why he did nothing at the meeting last Thursday?