Financial Times' Economists Survey: Monetary Policy

 By xJason.Rogersx

Once again, inflation, however measured, is not Britain’s big problem. We can bear some, and almost certainly more than we have at the moment. The challenge is to reboot the economy, but to do so in such a way that we don’t return to debt-fuelled overconsumption. The way for the Bank of England to do this is to ensure that low cost capital is available to invest in re-engineering Britain to be a future-proof low carbon economy. The boost it gave to the money supply through two phases of quantitative easing (QE) was ill-targeted, fine for the banks, adding in effect to the £40 billion plus public underwriting they already enjoy, but fairly useless at putting the economy on to any useful future course. Some of it also probably ended up fuelling commodity price and other asset speculation.

Here, though, is something they could do that could both reboot the economy, without being inflationary, by increasing the finance available for a UK wide ‘green new deal.’ Instead of the previous print-and-hope approach to boosting money supply, why not empower the underfunded Green Investment Bank (GIB) to issue bonds that the Bank of England will buy with new money. The GIB will then support new, green productive capacity which, by its nature, will not be inflationary, as well as having multiple other benefits.