‘BoE can’t do all the heavy lifting’: Pressure mounts on Chancellor to act on economy

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The Centre for Economics and Business Research has challenged Chancellor Philip Hammond to act faster on the economy, with Bank of England governor Mark Carney warning he can’t do everything, following the Bank’s stimulus measures announced earlier today.

The Bank of England has supported the widely expected interest cut to 0.25 per cent with a £60bn boost to its quantitative easing programme. It has also launched a Term Funding Scheme to provider cheaper funding for banks and to ensure the rate cut passes through to households and businesses.

CEBR director Scott Corfe says this looser monetary policy is welcome, but he adds the package of measures will not be enough by itself to lift the economy following Brexit.

Corfe argues what the economy needs is a boost to Government spending and tax cuts.

He says: “The lack of a pro-growth Emergency Budget following the referendum could prove to be a costly mistake, and waiting until the Autumn Statement to announce policy changes could make recession inevitable.

“The Bank of England is not in a position to do all the heavy lifting until then.”

In a letter to the Chancellor, accompanying the MPC decision, Carney said that the move to a “new equilibrium” post-Brexit vote will require “real” adjustments, and he warns many “are not the gift of monetary policymakers”.

“Nonetheless, monetary policy can still play a role in smoothing part of this adjustment by appropriately balancing the forces acting to push inflation above the target with those expected to push activity below the economy’s new path for potential output,” he adds.

In a letter responding to Carney, Hammond said he is “prepared to take any necessary steps to support the economy and promote confidence”.

Hargreaves Lansdown senior economist Ben Brettell says: “[Bank governor] Mark Carney has rightly pointed out that monetary policy can only do so much. This lays the gauntlet down for the Chancellor to apply some fiscal stimulus when it comes to this year’s Autumn Statement.”