Chancellor of the Exchequer George Osborne turned to the Bank of England yesterday to do more to help spur the country’s stagnant economy as he announced a halving of this year’s growth forecast.
In an annual Budget statement peppered with cat-calls from Opposition politicians, George Osborne said the Central Bank’s inflation target would remain at two per cent a year – but that that was not enough.
“As we’ve seen over the last five years, low and stable inflation is a necessary but not sufficient condition for prosperity,” he told parliament. Osborne said the country’s economy was now expected to grow only 0.6 per cent this year, half the rate predicted only three months ago, but he vowed to stick the course on austerity.
“It is taking longer than anyone hoped, but we must hold to the right track,” he said.
Osborne said he was publishing a review of the Bank of England’s mandate and said the Central Bank might need to use “unconventional monetary policy instruments” and give a clearer idea of what it will do in the future.
Such instruments in the past have included printing money to buy assets as a way of pumping cash into the country’s moribund economy.
“The new remit explicitly tasks the Monetary Policy Committee with setting out clearly the trade-offs it has made in deciding how long it will be before inflation returns to target,” he told parliament.
Such a change might make the Bank of England operate in a way similar to the US Federal Reserve which has given increasingly explicit signs about how long it will continue to provide support to the US economy.
The BoE moves coincide with the arrival in July of a new governor of the Bank of England, Mark Carney, currently the head of the Bank of Canada. Carney has previously said he wanted a debate on the role of the BoE. Osborne said Carney and the Central Bank’s current governor Mervyn King both agreed with the new remit which is set by the UK finance minister each year.
A further review of the mandate would be carried out before the end of 2019. Shortly before Osborne began speaking in parliament, some details of his market-sensitive statement were leaked on the Internet, prompting goading by opposition leader David Miliband. The Labour opposition argues that the Conservative-led government has stuck too long to austerity, failing to provide needed growth.
Forecasts by Britain’s budget watchdog showed growth was expected to pick up to 1.8 per cent in 2014, after the 0.6 per cent this year, Osborne said. That was also lower than the watchdog’s December forecast but Osborne said the United Kingdom’s growth was expected to be stronger than in France and Germany in 2013 and next year, Osborne said.
The Chancellor of the Exchequer said Britain remained on track to eliminate its underlying budget deficit within five years.
But a secondary target of stopping the rise of debt as a share of GDP would take a year longer than forecast in December, when it was also pushed back by a year.