Chancellor of the Exchequer George Osborne said he is prepared to give the Bank of England the green light for more monetary stimulus if the central bank judges it’s needed to keep the U.K. economy from slipping back into a recession.
Osborne said he will bow to any decision made by the central bank’s nine-member Monetary Policy Committee, led by Governor Mervyn King, to expand its 200 billion pounds ($319 billion) bond purchase program, a strategy called quantitative easing.
“If it makes judgments, then I would basically follow those judgments,” Osborne told reporters in Washington, where he is meeting ministers and central bank governors at the International Monetary Fund.
The Bank of England kept up emergency stimulus and left its interest rate at a record low as officials debate whether to join a global push to pump more aid into the world economy. The pound rose to an eight-month high against the dollar this week following the decision, which came after official Adam Posen stoked speculation that the bank could loosen monetary policy as soon as this month.
Other central banks are already signaling they will inject more economic stimulus to shore up a flagging global recovery. The Bank of Japan this week established a 5 trillion yen ($60 billion) fund to buy assets. U.S. Federal Reserve Chairman Ben S. Bernanke said on Oct. 4 that further asset purchases may help the U.S. economy.
Osborne also softened his rhetoric on his plan to implement the biggest squeeze on government spending since World War II, saying that, because it will be spread out over several years, it won’t derail economic growth.
“We have a staggered plan over four years,” Osborne said. “It does not come into effect overnight.”
Earlier this week, Osborne told the Conservative Party’s annual conference that the U.K. risks the downgrading of its top-notch credit rating, market turmoil and rising interest rates if it delays cuts to public spending.
He said he was “doing it by the book” by cutting welfare, taxing consumption and reducing tax and regulatory burdens on companies so that they can stimulate growth. He said an increase in the value-added tax and an income tax increase to 50 percent for the highest earners introduced by his Labour Party predecessor, Alistair Darling, together with his own plan for 6 billion pounds of spending cuts this year hadn’t hurt the economy.
“I don’t think you can point to a material impact on the U.K. economy this year,” Osborne said.