Feeling repressed?
At its Monetary Policy Forum on Tuesday 8 November 2011, Fathom Consulting published its latest BEST UK forecast in which it develops two scenarios for the UK – the central case, which anticipates a mild, domestically generated recession; and an alternative case that sees a much worse recession triggered by a disorderly sovereign default in the Euro Area.
The Bank of England has re-started its Quantitative Easing (QE) program, but according to Fathom Consulting this will do little to avert the coming recession since the programme remains too small in scope and ill-designed for that purpose. However, QE has boosted inflation. To keep inflation above target after a euro implosion would require up to a further £1 trillion of easing, according to Fathom Consulting’s estimates.
This quarter, the panel included:
The Bank of England has re-started its Quantitative Easing (QE) program, but according to Fathom Consulting this will do little to avert the coming recession since the programme remains too small in scope and ill-designed for that purpose. However, QE has boosted inflation. To keep inflation above target after a euro implosion would require up to a further £1 trillion of easing, according to Fathom Consulting’s estimates.
This quarter, the panel included:
- Former deputy Bank of England governor, Sir John Gieve KCB
- Former Monetary Policy Committee member, Professor Charles Goodhart CBE, FBA
- Former Monetary Policy Committee member, Dr DeAnne Julius CBE
Following a presentation of the forecast, the panel discussed the Bank of England’s decision to restart QE. All three supported the decision, although at least two expressed serious doubts that it would prevent the UK economy from falling back into a recession. DeAnne Julius said ‘I do support the Bank’s decision, not because I think it will work... but I think we have a real confidence issue and QE has an important signalling element. It does signal the Bank of England is on the case’.
Similarly, Charles Goodhart said the central bank’s decision to increase its emergency bond-purchase programme by £75bn last month is ‘not going to be that effective’. He added ‘it was effective the first time round’ because that was at the height of the financial crisis. ‘It’s not clear to me that driving down interest rates at the long end will achieve very much’.
The panel also discussed George Osborne’s credit easing plan, and whether ejecting Greece from the euro would prevent a default of the euro.
The event support materials associated with this event are available to download (members only) here:
Similarly, Charles Goodhart said the central bank’s decision to increase its emergency bond-purchase programme by £75bn last month is ‘not going to be that effective’. He added ‘it was effective the first time round’ because that was at the height of the financial crisis. ‘It’s not clear to me that driving down interest rates at the long end will achieve very much’.
The panel also discussed George Osborne’s credit easing plan, and whether ejecting Greece from the euro would prevent a default of the euro.
The event support materials associated with this event are available to download (members only) here:
- A copy of the BEST UK forecast executive summary
If you have any questions relating to the Monetary Policy Forum, please contact Sara Brigden at sara.brigden@fathom-consulting.com or call +44 (0)20 7796 9563.
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