George Osborne last night dismissed Labour claims that a new, £75billion round of money printing by the Bank of England represents a ‘Plan B’ for the economy. The Chancellor insisted instead it was an ‘appropriate tool’ given the gathering economic gloom. The Bank pumped a total of £200billion into the economy between March 2009 and January 2010 in the first round of so-called ‘quantitative easing’. Mr Osborne was then sceptical, saying the strategy was a leap in the dark and necessary only because of the ‘complete failure’ of Labour’s other measures to tackle the recession.
But economists say there is clear evidence that the first round of QE did stimulate the economy and the Chancellor has hinted in recent months that a second round – dubbed QE2 – was necessary as the EU debt crisis threatens to drag down Britain.
Business leaders welcomed the move. Graeme Leach, chief economist at the Institute of Directors, said: ‘Near zero GDP and money supply growth made a compelling case and the Bank of England was right to launch QE2. ‘It could be argued that the Bank of England was slow to introduce QE the first time, but thankfully it hasn’t made the same mistake twice.’
Shadow Chancellor Ed Balls, however, said the Bank was forced to act to counter the Government’s ‘reckless’ austerity drive. And former Chancellor Alistair Darling, who launched the first round of QE when Labour was still in power, said it ‘looks like the beginning of Plan B’.
It was thought the Bank would wait until next month and pump another £50billion of new money into the economy. Analysts said yesterday’s dramatic move was the clearest signal yet that the Bank thinks Britain is on the brink of a new slump.
Alan Clarke, UK economist at Scotia Capital, said: ‘Once again the Bank has made use of its secret weapon – shock and awe. Pretty much everyone expected QE to restart at some point – but it was only a minority view that it would start this soon, or in excess of £50billion.’