The global financial crisis could be the worst ever, the Governor of the Bank of England said this month.
Discussing the Bank’s reasons behind injecting a further £75 billion into the UK economy, Mervyn King told Sky News that the world may be confronting the worst financial crisis since the 1930s, if not ever.
Global economic data has been consistently downgraded over the last few months, and the latest statistics from the Office for National Statistics (ONS) showed that UK GDP grew by just 0.1 per cent in the second quarter.
The ONS figures also show that the rate of unemployment has continued to rise, up by 38,000 quarter-on-quarter.
Mervyn King told the BBC that the decision to boost the quantitative easing programme, which should help to ease liquidity, was in response to the changing shape of the economy.
Business groups have welcomed the boost in quantitative easing, but want more done to boost lending to businesses, in particular, a faster pace on the credit easing scheme that the Chancellor is expected to announce in next month’s Autumn Statement.
Commenting, David Kern, chief economist at the British Chambers of Commerce said: “UK businesses welcome the MPC’s decision to increase the QE programme to £275 billion. In the face of the risks facing Britain’s recovery, it is important to make every effort to underpin business confidence and avoid a setback.
“However, higher QE on its own is not enough, and we urge the MPC to look at other radical methods. The Chancellor’s intention to use credit easing methods to help stimulate the flow of credit in the economy is a welcome initiative, but its implementation will take time and the MPC is better placed to move more quickly.”
Other suggestions made by the BCC to raise confidence include following in the Fed’s footsteps by confirming that interest rates will not be raised until the end of 2012, and imposing negative interest rates on deposits held by commercial banks at the Bank of England, in an attempt to boost the availability of credit.
