PLANS by the UK central bank to ease the credit squeeze will allow policymakers to stay focused on using interest rates to control inflation, monetary policy committee member Tim Besley said yesterday.
In a speech that suggested he remained reluctant to cut borrowing costs too far because of rising inflationary pressures, Besley also said monetary policy should not attempt to cushion the economy from a shock.
"Monetary policy can smooth some o
f the adjustment in response to changes in the real economy. However, in my view it cannot – and should not therefore try to – prevent warranted real economy changes taking place," Besley said in a speech to the Canada-UK Chamber of Commerce. The Bank of England has cut interest rates three times since December, taking them to 5 per cent earlier this month, and is widely expected to cut them again by the middle of the year to shore up the economy in the face of a global credit crunch.
On Monday, the central bank unveiled a plan to swap banks' risky mortgage assets for at least £50 billion of government debt in its latest move to spare Britain from the ravages of the credit crunch.
Besley said this move was welcome because it was directly targeted at markets, the source of the trouble.
Howard Archer, chief UK economist at Global Insight, said Besley had developed a reputation of being among the most hawkish MPC members.
"We expect the Bank of England to continue to enact steady, but gradual, interest rates cuts," Archer said. "We forecast the next 25 basis point cut to 4.75 per cent to occur in June, but certainly would not rule out a May cut at this stage."
Minutes of April's MPC meeting, when rates were cut from 5.25 per cent, were due to be released today.
The full article contains 316 words and appears in The Scotsman newspaper.
