A report by the Institute for Public Policy Research (IPPR) says the Bank of England is “dangerously ill-equipped” to avert the next potential recession calling for the introduction of radical new policy tools.
According to the IPPR, the odds of a recession once every 10 to 15 years mean the 1694 established British central bank needs additional firepower when the next economic slowdown occurs.
Alfie Stirling, author of the report, said: “Current macroeconomic policy is dangerously ill-equipped to tackle the next recession, whenever it comes.”
“Interest rates will already be too low to allow for the cut that will be needed to stimulate demand. We are heading for a car crash if nothing is changed.”
The report said higher government spending or tax cuts could help drive forward economic growth – which has been lacking as successive Conservative-led governments have focused on cutting spending to reduce the budget deficit, despite the damaging impact of worse income growth and living standards.
Michael Jacobs, director of the IPPR commission on economic justice, said: “Pursuing austerity in an attempt to achieve a balanced budget has given us nearly a decade of slow growth, and the Bank of England has run out of tools to compensate. We badly need a new approach.”
On Sunday Britain’s opposition Labour Party said it would likely broaden the Bank of England’s mandate to include factors such as employment but would not seek to remove the central bank’s independence.
“I’m quite attracted by the wider mandate that there is in America but we would retain Bank of England independence,” Labour’s finance policy chief John McDonnell told ITV.
Asked whether he thought such a shift was very likely, he said “Yes, it is.”
Britain is not due to hold another national election until 2022, and is currently governed by Theresa May’s Conservative coalition.
Meanwhile a top Bank of England official — Alex Brazier, executive director for financial stability strategy and risk – has recently warned that the UK’s mortgage market is showing signs of increasing risk.
“Mortgage rates have fallen materially relative to bank rate, especially at the riskier end of the lending spectrum and lenders are now prepared to take a bit more risk,” he said.
Brazier, speaking last week at Imperial College Business School, added: “There is no flashing warning light here telling us to pull over urgently. There is, perhaps, the light that reminds us the car is due for a service.” ‘ Press TV.
