It is still too early to judge the impact of the Bank of England’s drive to pump money into the economy and boost spending.
That was the message to Birmingham companies yesterday from the Bank’s deputy Governor, Charles Bean.
He was in the city on the last leg of a nationwide tour to explain Bank policy on interest rates and its controversial £125 billion quantitative easing programme, or QE for short.
Under QE, the Bank has been stepping into the markets to buy financial assets, predominantly gilts, in order to boost the amount of money in the economy and make it easier for credit-starved businesses to raise money.
“The impact will very probably take a while to be felt,” Mr Bean told the Birmingham Post after a behind-closed-doors meeting with members of Birmingham Chamber of Commerce and Industry.
“I wanted to stress that one should not rush to form a judgment on how effective the programme has been yet.
“It takes time for the effects to work through.”
Mr Bean’s visit to Birmingham came against a background of uncertainty about the future of the QE programme with some market commentators interpreting a slowdown in spending as a sign that it is coming to an end.
During his tour of the regions, Mr Bean has denied that that was the case and he told the Post yesterday: “We will decide at the next monthly monetary policy committee [MPC] meeting at the beginning of August whether we want to make further purchases.
“We will make our judgment in the light of the Inflation Report predictions.”
Mr Bean stressed that MPC’s brief to keep inflation at or about two per cent was paramount – as was avoiding excessive market volatility.
Will Rogers, policy adviser at Birmingham Chamber, said the BoE’s overall view that quantitative easing had led to some unfreezing of credit flows was borne out by the increased investment intentions revealed by members in the chamber’s latest Quarterly Economic Survey.
But Mr Rogers took issue with Mr Bean’s declaration that the future of QE depended on how the economy develops, calling it a “contentious issue”.
“If this is correct, BCI still believes that the policy should have been extended earlier this month,” he said.
“This less-than-conventional approach was in response to a sharp contraction and, whilst there have been some successes such as exporters benefiting from the weak pound, the jury is still out on its long-term success.”
Mr Bean yesterday said there was little the BoE could do to help specific industries, such as struggling West Midland carmakers and their component suppliers.
The Government was tailoring policies to help such companies.
“But we do think that in time our actions will help to lower the cost of debt to companies and households by increasing the supply of credit.”
Neither would he be drawn on how much longer the recession still has to run. “I think the message that I have been getting is that, while there might be indications that activity is bottoming out, so far there is not much sign of recovery taking hold,” Mr Bean said.