Slash interest rates and stop bond sales, ex-policymaker tells Bank of England
The Bank of England should slash interest rates and stop selling government bonds in the wake of the turmoil in the banking sector, a former Threadneedle Street policymaker has said.
David Blanchflower, a member of the Bank’s monetary policy committee during the global financial crisis of 2008, said official borrowing costs should be cut from 4% to 3% at this week’s meeting.
Financial markets expect the Bank either to raise rates to 4.25% or leave them unchanged, but Blanchflower said the committee needed to rethink its approach after the collapse of Silicon Valley Bank in the US and the financial lifeline thrown to Credit Suisse by the Swiss authorities.
Blanchflower, together with fellow economist Richard Murphy, also urged the Bank to reverse quantitative tightening (QT), under which it is gradually selling off the bonds it bought in order to boost the money supply and support the economy between the 2008 financial crisis and the Covid-19 pandemic.
The pair said they strongly supported the Bank’s quantitative easing programme on the basis that it helped to offset the impact of austerity since 2010. Rejecting the idea that quantitative easing (QE) had caused inflation to hit its highest level in four decades, Blanchflower and Murphy said in a submission to the Commons Treasury select committee that bond buying should be resumed at a rate of £50bn a year to prevent the economy sliding into recession. The Bank said last September it intended to dispose of £80bn of the £895bn of bonds it had accumulated over the subsequent 12 months.
Based on the Bank’s forecast of a two-year fall in output and inflation dropping below its target by 2025, Blanchflower and Murphy said there was an “urgent need” for an interest rate cut of one
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