Haig Bathgate speaks to The Scotsman as one of a number of economists who view the Chancellor's new remit for the Bank of England as a missed opportunity that is unlikely to herald a radical shift in monetary policy.
George Osborne had been expected to use his Budget speech to tweak the way the Bank's monetary policy committee (MPC) keeps consumer prices under control, with some analysts even suggesting he might scrap its inflation target in a bid to boost the economy.
While he confirmed the inflation target would remain at 2 per cent, Mr Osborne gave the central bank room to loosen monetary policy by giving it the freedom to explore"unconventional" measures.
Outgoing governor Sir Mervyn King said he supported the changes, but Haig said the apparent increase in flexibility merely"made formal what has been the Bank's unofficial policy for some time".
Since March 2009, the Bank has ploughed £375 billion into the economy through QE, under which it buys government bonds from financial institutions. The policy is aimed at increasing growth but has been blamed for pushing up inflation and reducing bond yields, hitting pensioners' incomes. Haig said:"It's quite clear QE has not been working – banks have just been using the money to shore up their balance sheets."
Funding for Lending scheme
The Bank teamed up with the Treasury last year to launch the £80bn Funding for Lending scheme (FLS), which offers discounted funds to banks, providing they pass on the benefits to households and businesses in the form of cheaper loans.
Mr Osborne said yesterday he was"actively considering" a possible extension to FLS, an announcement welcomed by Haig, who said the scheme was a"very good idea that hasn't been working to date".
He added:"To be fully effective it will require more confidence on the part of the consumer to borrow."
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