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Bank of England poised to boost QE

Fresh hint from MPC member Ben Broadbent comes as ILO report warns of ‘massive jobs shortfall’ in G20 countries

Britain’s central bank stands on the brink of “printing” more electronic money to prevent a slide back into recession and surge in unemployment amid warnings that the world’s major economies are heading for a “massive jobs shortfall” by the end of next year.

Ben Broadbent, who joined the Bank of England’s monetary policy committee in the summer, said any further signals that the UK economy was about to contract would persuade him to boost the bank’s £200bn quantitative easing programme.

Broadbent said he almost voted for an expansion of QE at the September meeting following a raft of weak economic data.

“I can tell you I was reasonably close, so I don’t think it would take much more of a deterioration. It depends exactly what you mean by deterioration. Some of these surveys, particularly of output in the eurozone, are consistent with there being (minimal) growth,” he said.

His comments, after a speech to City executives, fuelled speculation in the Square Mile that a majority of MPC members, including the Bank of England governor Mervyn King, are poised to extend the QE programme at their next meeting.

In his speech, Broadbent said that it was better to let inflation take its course rather than clamp down with tighter monetary policy and trigger a huge rise in unemployment. He endorsed the MPC’s low interest rate policy over the last two years – which he said was preferable to higher rates that increased unemployment and reduced demand.

The International Labour Organisation (ILO) said that despite efforts in some countries to maintain higher levels of employment, developing and developed nations had seen 20m jobs disappear since the financial crisis in 2008.

At current rates it would be impossible to recover them in the near term and there was a risk of the number doubling by the end of next year, it said.

“We must act now to reverse the slowdown in employment growth and make up for the jobs lost,” ILO director general Juan Somavia said. “Employment creation has to become a top macroeconomic priority.”

The number of people in work in the G20 has risen by 1% since 2010, but 1.3% annual jobs growth is needed to return to pre-crisis employment levels by 2015, the ILO said in the study prepared with the OECD thinktank for G20 labour ministers meeting in Paris.

“However, employment growth of less than 1% cannot be excluded given the slowdown of the world economy and the anaemic growth foreseen in several G20 countries,” the report said. “Should employment grow at a rate of 0.8% until the end of 2012, now a distinct possibility, then the shortfall in employment would increase by some 20m to a total of 40m in G20 countries.”

UK unemployment has remained around 2.5m since the recession began in 2008 after many workers went part-time or accepted wage freezes. However, the recent slowdown in growth has pushed unemployment up again.

Many economists are sceptical that further increases in QE by central banks will reverse the slide into recession that appears to be gripping most European nations and the US. Without strong government intervention to boost growth, unemployment is likely to remain high or get worse, they say.

Broadbent warned that markets were sceptical of policymakers’ promises and that the time has come for action.

Analysts said that Broadbent’s comments reinforced the message from last week’s minutes that it would not take much for the Bank to start another round of gilt purchases.

“Now people have him marked down as one of the guys who would have no problem shifting towards Adam Posen’s camp if matters deteriorated over the coming few weeks or months,” said Eric Wand, gilts strategist at Lloyds Corporate Markets. © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds