MPC's newest member backs austerity

The newest member of the Bank of England's Monetary Policy Committee has backed George Osborne's austerity programme.

Speaking to members of the Treasury Select Committee, Ian McCafferty said the Chancellor "needs to maintain the austerity programme because otherwise... there are risks that we will see disruption in the financial markets and that would steepen the yield curve [making government borrowing more expensive] and significantly damage what we are trying to do at the Bank".

Mr McCafferty, the former chief economic adviser to the Confederation of British Industry, who replaced Adam Posen at the Bank, would not be drawn on whether he favoured further quantitative easing (QE), beyond the £375bn already announced, to boost the UK economy.

"We are... in a position of significant uncertainty about quite where the economy is," he said, citing the one-off from an extra public holiday in the second quarter that acted as a drag on the economy. "I would like to see more evidence before I would make any decision on whether QE needs to be extended further."

In a speech to the Scottish Economic Society yesterday, fellow MPC member David Miles defended the Bank's QE strategy, saying: "Monetary policy in the UK has been set to its most expansionary. I believe it is right...."