The Bank of England may have to inject up to £50 billion into the economy to block a double-dip recession, unless there are signs of growth quickly, records of discussions amongst top officials revealed yesterday.
Despite declarations that it would not row back from plans to end the UK’s national deficit by 2015, the government is now considering accelerating a £5 billion investment in new infrastructure to boost economic life.
In Birmingham, Liberal Democrat leader and deputy prime minister Nick Clegg told his party conference that tough times lay ahead, but added that the sacrifices being demanded now would be worthwhile.
“We were right to pull the economy back from the brink. It is clearer now than ever that deficit reduction was essential to protect the economy, to protect homes and jobs. Deficit reduction lays the foundations for growth. But on its own it is not enough. That’s why we’re already: investing in infrastructure, reducing red tape, promoting skills, getting the banks’ lending. But the outlook for the global economy has got worse. So we need to do more, we can do more, and we will do more for growth and for jobs,” he declared.
Records of discussion among members of the Bank of England’s Monetary Policy Committee a fortnight ago, released yesterday, show that they ruled out a new round of “quantitative easing” – where its injects money by buying bank assets by an 8-1 majority.
However, the decision was “finely balanced” and it could change with another month of poor figures – a judgement that led the markets in London last night to predict that it would act to put £50 billion more into circulation in the last three months of the year.
Borrowing by the British government jumped to £15.9 billion last month – far higher than analysts had expected, though the chancellor of the exchequer George Osborne’s figures for the year as a whole remain on track, unless matters worsen further.
Income tax receipts in August stood at £11.8bn, nearly £5 billion lower than last year’s figures, which will provide evidence for those who argue that the 50p tax rate introduced by Labour in its final year in office is not producing extra revenues.
However, the fall in the profitability of the banks – a vital sector in recent decades for UK tax revenue and falls in output from North Sea oil and gas fields, prompted partly by Mr Osborne’s decision to increase taxes on them could hurt the tax haul in coming months.
Liberal Democrat Chief Secretary to the Treasury, Danny Alexander, ruled out abandoning its plans to end the deficit: “The message I am taking from what the International Monetary Fund have said is that we should stick to our plans.What we are seeing around the world are doubts about politicians’ ability to stick to their plans and take tough action. We have done that, and it is a prize we shouldn’t sacrifice at all,” he said in Birmingham.
So far this year, the UK has borrowed nearly £52 billion of the £122 billion planned.