Belfast Telegraph

A tale of two cities

Two beleaguered economies, two different solutions. In London, the Bank of England holds firm, in Tokyo, Japan releases billions

By David Elliott

The Bank of England has proven inflation remains at the forefront of its thinking by deciding not to embark on another round of quantative easing (QE).

Economists said the Monetary Policy Committee (MPC), which yesterday kept interest rates and the QE programme on hold, is still fixating on keeping inflation at 2% despite calls for the central bank to focus more on kickstarting the slovenly UK economy.

The chancellor reiterated that sentiment only this week having already hinted that inflation shouldn't be the only consideration for Governor Mervyn King and the rest of the MPC in the 2013 Budget statement.

By increasing the supply of money, quantative easing runs a strong risk of boosting inflation which currently stands at 2.8%, but it's one of the few stimulus measures the central bank has at its disposal.

"The problem is just what the MPC should do to stimulate growth and encourage investment," said Esmond Birney, PwC chief economist in Northern Ireland.

"Manufacturing exports are slowing, construction has stalled, income-pressed consumers fear for their jobs and the banks are haunted by non-performing loans. The Funding for Lending scheme is boosting the mortgage market but seems to have little real impact on commercial and business lending."

And he said that the cut in expected growth for the UK economy to 0.6% from 1.2% means growth in the Northern Ireland economy is "now looking marginal at best". The Bank of England's inaction is in stark contrast with it's peer in Japan.

The new boss of the Bank of Japan yesterday announced a huge financial stimulus package for its beleaguered economy which consisted of the purchase of long-term government bonds worth 50 trillion yen (£350bn), nearly 10% of the country's annual gross domestic product.

But deflation has been the issue for Japan over the last few months and Haruhiko Kuroda is actively trying to boost prices there so is printing money.

For the Bank of England, the hunt goes on for a way to boost growth in the UK economy without driving up inflation, although incoming governor Mark Carney is expected to pay less attention to the 2% target.

"After another month of MPC deliberations, the answer to the conundrum of stimulating growth seems as elusive as ever," he said.


Quantitative easing is a monetary policy used by central (national) banks to stimulate economic activity, whereby the Bank of England buys gilts and bonds, boosting the UK money supply so banks have more cash to lend. Low base rates, plus QE, equals more money in circulation and a reduction in short and long-term borrowing rates.

Belfast Telegraph