The Bank of England will launch two stimulus packages amid the worsening economic situation in Europe and just two days before the Greek election. The packages will take the form of cheap credit for banks. The hope is that such measures will boost lending and insulate the U.K from the potential fallout that could follow Sunday's election in Greece.
The British government has tried similar measures before. Hundreds of billions of pounds have already been injected in the economy via the quantitative easing program. The new plans differ in that the credit will now be dependent on banks lending the credit they receive.
Mervyn King, the governor of the Bank of England, has resisted such measures for some time. However, the situation in Europe and the U.K's return to recession has panicked policy makers into the move.
George Osborne, the Chancellor of the Exchequer, said that the packages will "inject confidence" into the financial system. When the plan is officially announced tomorrow we will see how the markets respond.
The U.K is preemptively acting ahead of the Greek elections that will almost certainly deliver bad news for the eurozone. It would not be surprising if the U.S. government were to undertake similar measures. Commenting on the announcement David Enrich, Jason Douglas, and Ainsley Thomson writing for the Wall Street Journal said:
The new series of measures announced Thursday appears to be taken partly from playbooks designed by European and U.S. central bankers.
And:
The coordinated announcement by Messrs. Osborne and King signals that, with the crisis threatening to escalate, the Treasury and Bank of England are trying to work in lockstep.
Last week Obama and Cameron addressed the need for swift action on the eurozone and "agreed on the need for an immediate plan to tackle the crisis and to restore market confidence, as well as a longer-term strategy to secure a strong single currency". We should not be surprised when a new round of stimulus packages are announced or proposed by the Treasury Department in the coming days and weeks.
Commentaires