NIESR warns BoE not to act hastily regarding QE

| October 20, 2010

Influential think tank, the National Institute for Economic and Social Research (NIESR), is urging the Bank of England to be cautious when considering its next move for the UK economy.

Speculation is mounting that the Bank of England will pump a further A?50 billion into the economy next month via its quantitative easing (QE) programme.

QE, also known as printing money, is a process whereby the Treasury injects funds into the financial system to ease pressure on banks by giving them extra capital

The Bank embarked on its A?200 billion QE programme in March 2009, when the economy was in the midst of its worst recession in more than five decades.

However, the NIESR believes the Bank must refrain from injecting further funds into the economy.

Ray Barrell, acting director of NIESR, said a�?there is no reason for the Bank of England to do anything at the momenta��a��It should reassess in three months’ time.”

Meanwhile, the NIESR said if the economy deteriorates, the Bank should be prepared to offer a temporary stimulus such as a National Insurance holiday or tax rebates.

The Institutea��s comments come just hours before Chancellor George Osborne reveals his Comprehensive Spending Review.

Mr Osborne will provide details of how he intends to slash spending by A?83 billion by 2014 as he endeavours to bring down the spiralling budget deficit.

As a result of the Spending Review, the NIESR has revised down its growth forecasts for 2011 and 2012.

It expects the UK economy to grow by 1.6% in both 2011 and 2012 – slightly down from its original forecast for 1.7% growth in 2011 and growth of 1.8% in 2012.

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