Uncle Audley considers Quantitive Easing and suggests “Don’t ask Gieve!”

 Uncle Audley has been scathing about the performance of Mervyn King and the Monetary Policy Committee at the Bank of England.  In his view they have reacted far too slowly to the gathering storm.  It seemed obvious to most people in the country from the middle of 2008 that we were in a recession.  Indeed Uncle Audley was, even then, going on about the danger being depression.  Unfortunately the only D word coming out the Government was of a downturn. 

Yet the number of members at the MPC at this time were actually pushing for an increase in interest rates, not a reduction.  The sole voice arguing for base rate reduction was David “Danny” Blanchflower.  Now of course they have all changed their tune and we now have a base rate of 0.5% in play.  There is not much more to go and the Bank of England have moved onto Plan B which is the quantitive easing policy. 

Uncle Audley takes the matter on:

“Quantitive easing does sound a little more reassuring than printing money.  I suppose I could say it is just semantics and we have some spinning here.  Nevertheless I know there is a difference and quantitive easing is not quite the same as printing money.  The latter does give immediate connotations of inflation.  Printing money is the first step along an inevitable path to that end. 

What I do find astonishing is the comments by Sir John Gieve who is the outgoing Deputy Governor of the Bank (maybe thank goodness for that).  He is reiterating the point that inflation will be kept low.  Apparently this will require the Bank to start raising rates before it is obvious on the street that the economy is getting better.  Now, with the best will in the world, how are we to believe that the Bank will recognise the situation before those people directly affected.  We already have had the situation where the MPC were far far far behind the pace in terms of reducing rates.  Why should we think they will be any better in recognising the need to raise rates before everyone else at the sharp end?  They hardly inspire you with confidence and the smart money is on the Bank of England moving too slowly so that inflation proves to be well and truly back.  I think it was rather a case of “Do not ask Gieve”.