THE pound continued to fall yesterday as the Bank of England called a crisis meeting for next Tuesday to discuss its ‘Quantitative Easing’ (QE) programme (printing money).
Mervyn King, the Governor of the Bank of England, backed a weak UK currency, in an interview with north-east regional newspaper, ‘The Journal’.
Sterling has declined by almost a quarter against other major currencies in the past two years.
But King claimed the continuing slide in the exchange rate of sterling in recent months would be ‘helpful’ in tackling Britain’s trade deficit, because it would boost exports.
Angry opponents of Quantitative Easing said the destruction of manufacturing industry in Britain meant Britain had nothing left to export.
Inflation and interest rates are going one way – up, King’s opponents said, warning that Quantitative Easing was printing sterling out of existence.
The pound dropped by 0.8 per cent against the dollar to $1.6202 after King’s comments were published.
It also fell one per cent against the euro to 91.04p.
King said: ‘. . . there’s no doubt that what we need to see now is a shift of resources into net exports – whether directly or in producing things that compete with imports.’
But the Bank’s governor warned not to get ‘carried away’ about the chances of an economic recovery any time soon, saying that any ‘growth’ taking place was ‘clearly very small growth after a very large fall’.
He added that, ‘unemployment has risen, so it’s a difficult challenge ahead.’
Despite the warnings about the consequences of a falling pound, some City economists were yesterday demanding further falls in sterling’s exchange rate.
They predicted that the pound would continue to plummet because of the huge government borrowing to bail out the banks and fast-rising unemployment.
The outlook for British capitalism was ‘bleak’, they admitted.
Minutes of the Bank of England’s latest interest rate meeting this month, published on Wednesday, warns against ‘false dawns’ when talking of ‘economic recovery’.
The minutes showed the nine members of the Bank’s Monetary Policy Committee decided unanimously to leave interest rates at 0.5 per cent and the QE total at £175bn.
The Bank of England’s deputy governor, Charlie Bean, will chair a crisis meeting of ‘experts’ next Tuesday to discuss the impact of Quantitative Easing, with supporters and opponents of the Bank’s ‘radical policy’ polarising.
The special meeting due to take place at the Bank’s Threadneedle Street headquarters in the City of London is being described as ‘unprecedented’.
Despite the huge amounts of extra paper money, unemployment continues to rise while consumer spending is falling.
The great fear of the City of London is that the policy could lead to a ‘Zimbabwe or Weimar Germany’ situation, where the pound becomes completely worthless and there is a total economic collapse.
