Bank of England governor fears crisis is 'worst ever'

 

Mervyn King: "Quantitative easing will work"

Bank of England governor Mervyn King has said this financial crisis could be the worst the UK has ever seen.

His comments came after the Bank authorised the injection of a further £75bn into the economy through quantitative easing (QE).

"This is the most serious financial crisis we've seen at least since the 1930s, if not ever," he said.

Despite criticising the use of QE in the past, Chancellor George Osborne said it was now the right move to make.

The Bank has already pumped £200bn into the economy, under the previous Labour government.

It has done this by buying assets such as government bonds, in an attempt to boost lending by commercial banks.

Mr Osborne also said he endorsed Mr King's view on the severity of the crisis.

"I certainly think it's as serious as anything since the 1930s," he told the BBC.

Slow money

Mr King told Sky News: "We're having to deal with very unusual circumstances and to act calmly and do the right thing. The right thing at present is to create some more money to inject into the economy."

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The Bank's Monetary Policy Committee has been split for months over whether the UK needs a boost to the economy through QE, an increase in interest rates to stave off inflation - which at 4.5% is well over double its target - or to leave things as they are.

Only one member, Adam Posen, has consistently pushed for more QE.

Mr King said the economic landscape was unfamiliar - the world had changed in the past three months and so had the policy response necessary.

He said the amount of money in the economy was not growing quickly enough, and he could not rule out a further bout of QE.

On Wednesday, data showed the UK economy grew by 0.1% between April and June, which was less than previously thought.

"The deterioration in the outlook has made it more likely that inflation will undershoot the 2% target in the medium term," the Bank said in a statement announcing its policy decision.

'All available tools'

George Osborne: "Britain needs to use all the tools available to get the economy moving"

Mr Osborne had said in 2009, when he had been in opposition, that "printing money is the last resort of desperate governments when all other policies have failed".

But speaking to BBC Radio 4's Today programme on Friday, the chancellor said: "We inherited as a government a pretty desperate fiscal position and we had to take action.

"I think the crucial difference this time is that you've got a credible government plan to deal with our debt."

Start Quote

The message running through Mervyn King's answers was that the job of rescuing the recovery couldn't be left to central banks alone - that's true of the UK, and for the broader global economy”

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Mr Osborne added that the UK's authorities were using "all the tools available to deal with the worsening global debt storm".

In his speech to the Conservative Party conference earlier in the week, Mr Osborne said that the Treasury would look into "credit easing" - a way to underwrite loans to small businesses who are struggling to get credit now.

He confirmed this in his letter to Mr King, authorising the QE expansion: "Given evidence of continued impairment in the flow of credit to some parts of the real economy, notably small and medium-sized businesses, the Treasury is exploring further policy actions. Such interventions should complement the MPC's asset purchases."

 

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  • rate this
    +1

    Comment number 147.

    @127.Taxesshouldbelower & 103.Tory_double-_dip
    The REAL truth is that both you are right.
    The Tories have no decent idea how to run an economy, but neither do Labour. BOTH major parties, in fact as far as I can see ALL current politicians have only one thing in mind making themselves and their friends rich at the expense of the country, the majority, anyone who gets in the way. If voters think..

  • rate this
    +4

    Comment number 146.

    Unfortunately bad news makes good media. We all know we're facing hard times for a while, and that "world leaders" are doing their best to fix it. The situation will not last forever. Perhaps less doom and gloom and more positive speeches will stop public figures talking the western world back into recession. Just get on with your jobs and return us to normality.

  • rate this
    +1

    Comment number 145.

    A quick way to get the economy moving ? Allow all people with private pensions to withdraw up to 50 percent of their fund (tax free) after the age of 50. There are huge amounts of wealth tied up in pension funds hopefully waititng for annuities to offer more value. But they won't for a while.

  • rate this
    +19

    Comment number 144.

    QE didn't work before in either UK or US, how is this time any different? All it will do is end up on balance sheets. they would be better off printing the cash and paying off peoples credit cards and mortgages for them. At least the economy will stimulated while they run them back up again and it will still end up on the banks balance sheet

  • rate this
    0

    Comment number 143.

    I neither like nor approve of Mervyn King's responses. He's ALWAYS too slow to get the base rate adjusted, so we have bubbles and busts. That's why house prices soared and are now flopping.

    But I admit admiration for his all but using the word Depression. He thinks things will be worse. It's been my belief we're entering a Depression. So thanks for that bit of honesty, Merv.

  • rate this
    +3

    Comment number 142.

    King's message, if true & there's another, worse, financial meltdown, could spell ruin for the middle classes (I don't mean better paid workers), the wiping out of saving & pensions, unemployment on a much higher scale.

    Capitalism (& Stalinism) are past their sell-by-date; the only alternative not yet tried is where ordinary people run big industry/services for everyone's benefit, not for the few

  • rate this
    0

    Comment number 141.

    124.rememberdurruti
    7 Minutes ago
    "Rescuing the banking system has cost the equivalent of more than £5,500 for every family in the country, an official audit has found. "
    =
    Wise post.. this has cost REAL money, in wrecked pensions, lost jobs and defaulted mortgages. Cameron, Osbourne & King Co. only see paper money. Thats why they are failing so badly while trying to blame the Eurozone.

  • rate this
    +1

    Comment number 140.

    When some one says something "will work" in all probably it won't. After all, QE in the other economies has been show to drive short term profits for companies rather than real growth (as companies have rather saved those profits than made investments). Cash is "King" in this time of austerity. Being liquid is important.

  • rate this
    +3

    Comment number 139.

    “Give me control of a nation's money and I care not who makes it's laws."
    - Mayer Amschel Bauer Rothschild

  • rate this
    +1

    Comment number 138.

    Let's remember Britain had a relatively mild 1930s in comparison to the rest of the world... I do believe this recession could be worse over the next few years though!

  • rate this
    +7

    Comment number 137.

    @99.david - whilst we may not be as poor as people were back in the 30s we are fast approaching that state in many sections of society.

    I for one would not like to see the poorest of families in the UK returning to the financial woes that hit us in the 30s.

    Would you?

    To dismiss the "crisis" by saying we are more wealthy compared to the 30s is complacency, and we all know what that brings.

  • rate this
    +2

    Comment number 136.

    @110.Rebecca Riot
    For the first time in many decades we have a government which actually can claim to have votes from more people than not. However, given the lack of information provided to voters, the lies from all politicians, the lack of decent media and of course the stupidity of the average person an election will change nothing but the positions of the deckchairs on the sinking ship

  • rate this
    0

    Comment number 135.

    @131 I think you are going to be waiting a loooooooooong time for that one dude. It does not make sence for political parties not to blane the previous lot (even though the Tories were complaining that there was too much bank regulation all the way through the early 0's) because then they would have to acknowledge the futility of their actions.....

  • rate this
    0

    Comment number 134.

    103

    The incompetent government did call an election and are no longer in power.

    If they had not been turfed out, their fairy tale proposals to address the deficit / empty coffers they left would have meant the IMF would have been here as well as Greece!

    Who was it who called the recession a "downturn"? Oh yes, the government of the day and the BBC.

  • rate this
    -3

    Comment number 133.

    Most people feel pretty negative about more money going to support banks. They are unfortunately part of the solution as well as the problem. They have yielded huge revenues for the country for 90+ years of the last century and we need them to do this again albeit with a much more watchful eye than we had under the last government.

  • rate this
    +11

    Comment number 132.

    #120 Geoff

    Greed is where a person grabs everything that they can and cares not one jot for the community, such as the rioters in the summer.

    Capitalism is where a person grabs everything they can and cares not one jot for the community, such as the stock market traders.

    Woops

  • rate this
    +4

    Comment number 131.

    The financial crisis is a WORLD wide condition caused by risk taking within the global banking industry - UK deficit or not. I'm looking forward to the day when we leave behind the tiresome habit of blaming the previous govt for all evils and focus on having a grown up and impartial debate about this topic. Cuts will not garantee a solution but they are popular within certain sectors of society.

  • rate this
    +2

    Comment number 130.

    @21 I have to partly disagree with you on your comment. Yes the money should have come to us, but by going to the banks it will go straight into their capital reserves to bolster their balance shets.

    Problem with capital easing will be that the banks will back 'sound' investments by bonds and it will be the much riskier bands that are backed by Government funding............

  • rate this
    +1

    Comment number 129.

    When this bubble has totally burst and we stop chasing material objects then we may be able to restructure our society, but I wont hold my breathe.

  • rate this
    +2

    Comment number 128.

    Ever since assuming power the condems have blamed the previous labour government for the financial crisis and consistently put forward their austerity programme as the only way out of the mess. They got it wrong and now it is the people who do not have a million or so in the bank who are going to suffer. As we plunge into recession the goverment is going to blame everyone but themselves

 

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