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Chancellor's QE comments 'overstepping the line'

Published 10/10/2016

Chancellor Philip Hammond said he approved of a fresh round of QE in August
Chancellor Philip Hammond said he approved of a fresh round of QE in August

The Government has been accused of "overstepping the line" by taking a swipe at the Bank of England and calling into question independently set monetary policy.

Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said there had been a "change in rhetoric" from senior ministers, reflecting a growing global discontent with central banks at their ability to boost economic growth.

He said comments made about quantitative easing (QE) by Chancellor Philip Hammond "seem to be overstepping the line" and were typical of frustrations seen across the globe.

"People and governments in a number of countries are becoming more aggressive towards central banks, disappointed by recent growth performances."

"It is probably just words," he added. "I don't think the Bank is going to come under pressure to stop QE."

"We have seen the same debate play out in the US as well. Public satisfaction in the US Federal Reserve is quite low and Donald Trump is taking an aggressive stance towards the Fed."

Prime Minister Theresa May hit out at the impact of QE at the Tory Party conference last Wednesday, stating that it was the rich who benefited from the Bank printing money and cutting interest rates in the years after the 2008 financial crash, while ''ordinary working-class people'' were asked to make sacrifices in terms of stagnating pay, job insecurity, unaffordable housing and wages undercut by competition from low-skilled immigrants.

Mr Hammond said in interview with CNBC that he approved of a fresh round of QE in August, but was "conscious of the impacts that quantitative easing has had and we will use it carefully and cautiously".

However, he said the Bank was "independent and has control of monetary policy".

The Chancellor also backed Bank governor Mark Carney on Thursday, saying he was doing a "good job" and was welcome to serve a full eight-year term rather than leaving in 2018 as previously planned.

Sam Bowman, executive director of the Adam Smith Institute, said: "The most likely explanation for all this is that Mrs May misspoke on Wednesday and did not mean to imply either that QE was no longer an option in monetary policy or that the Bank of England was no longer an independent body.

"Philip Hammond was quite right to clarify as quickly as possible because any sign that the Bank of England would not be willing and able to loosen policy if needed in the event of a downturn would risk driving the economy into a very dangerous position indeed."

A shift in policy is expected from the Chancellor in his November 23 Autumn Statement, with a move towards a fiscal programme focused on tax and spending.

Mr Bowman added: "QE is vital to the stability of the British economy and to imagine that fiscal policy could replace it is misguided economically, even if it was politically feasible.

" Even if they say they're moving away from it, that's because the economic horizon doesn't look like it's necessary. As long as the Bank of England is independent and allowed to use QE as a tool, and remember that a large QE package was just announced recently, it's hard to say that this represents a major change of policy."

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