David Prosser: Osborne's obstinacy forces MPC's hand


Click to follow

Outlook The Bank of England's Monetary Policy Committee has made the right decision, but it was interesting to note yesterday that the Governor felt it important to make it clear there had been no pressure from the Government for it to act. In terms of direct pressure, that is no doubt true, but the fiscal policy pursued by the Treasury has left the MPC with precious little choice but to intervene.

The Chancellor has long made it clear he is not prepared to deviate from Plan A, however much the economic facts on the ground may change. In doing so, George Osborne has always had the luxury of knowing that the MPC has it within its power to offer an alternative Plan B to the fiscal loosening for which his political opponents have called. Yesterday, the Committee clearly felt it had no option but to act.

We should not think that its alternative Plan B comes at no cost, however. For one thing, there is some scepticism about how effective this second round of quantitative easing will be in an economy where many think it is not the cost of credit that is the problem, but its availability. A fiscal boost, putting money directly into the economy through tax cuts or higher spending, might achieve better results.

For another, this policy is bad news for struggling savers, not to mention pension funds, which are seeking an emergency meeting with their regulator to discuss the higher funding costs they will face courtesy of lower gilt yields.