British PM Hints At Pushing For Changes In Monetary Policy
Speaking at the Conservative Party's annual conference this week, Prime Minister Theresa May surprised industry observers with a sharp criticism of Britain’s current monetary policy.
It was May’s first speech at the conference and she used the opportunity to lay down her priorities and her vision for the country.
She described the prevalent monetary policy with ultra-low interest rates and quantitative easing (QE) program as an essential emergency solution after the financial crash, but added that they had resulted in bad effects for the country. In a statement Prime Minister May said,
People with assets have got richer. People without them have suffered. People with mortgages have found their debts cheaper. People with savings have found themselves poorer. A change has got to come. And we are going to deliver it
May’s remarks come after the Bank of England cut interest rates in August to a record low of 0.25 percent and expanded the QE program in a bid to shore up growth in the country. Mark Carney, the governor for the Bank of England earlier stated that monetary policies from the central bank alone not improve the economy and governments need to take direct action for boosting growth.
Sam Bowman, executive director of the think tank Adam Smith Institute, criticized May’s comments saying she was incorrect in claiming that the new policy was making the British poorer. According to Bowman, without the push, the economic recession would have been deeper and more severe. He called upon the Prime Minister to give up her inclination to adopt an interventionist approach and accept that rather than state support, it was the markets that can solve problems.
Kathleen Brooks, research director at brokerage City Index pointed out that May’s comments would be able to stem the downward pressure exerted on the pound which has been witnessing record lows due to negative sentiment surrounding Brexit. May announced earlier this week that the government is likely to trigger Article 50 of the EU treaty by March 2017, which will start two-year separation process from Europe.
Brooks also highlighted that since the Bank of England was fully independent, it was highly unlikely that the comments would influence the policy but it could result in a mini-rally for the British currency.
In her speech May also indicated that austerity would no longer be the watchword for the British government, saying she will aim for a balanced budget. The Prime Minister earlier dropped the Former Chancellor George Osborne’s target of becoming surplus positive by 2020 but has retained the goal of making public finances healthier.
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