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The British Chamber of Commerce has said that the economy may finally be pushing in the direction of the escape velocity needed for real growth to occur. It seems that British manufacturers were able to enjoy excellent growth in June, with the sector expanding by the largest amount in two years. It is even possible that GDP growth will increase to 0.6% for the second quarter, versus the 0.3% growth seen in the first three months of the year.
Fans of QE will be disappointed by this turn of events, but it does give hope that the economy is finally out of emergency care. If the Bank of England is going to look for additional ways to boost the economy, then QE probably isn’t the best route.
Instead, a more creative approach is needed. It would perhaps require the Bank to emulate its cousins in the US and directly target unemployment as well as inflation (although, to be honest, the MPC has not been much bothered about inflation over the past few years). This would at least give the bank a clear end target, which would mean it would eventually be able to extricate itself in due course from any new easing policy.
Such a policy would see sterling lose ground against the US dollar, but there will hardly be many complaints on that score from either the Bank of England or the government. A weaker pound gives a boost to UK exports, even while making imports more expensive.
In the long run, however, ‘wait and see’ is probably the only real policy for the Bank. They can tinker round the edges to boost confidence, but when we’re dealing with an economy that has suffered as much as the UK, time is perhaps the only real healer. Mark Carney was lucky in having a strong Canadian economy during his time at the Canadian central bank, but I wonder if he can be lucky a second time.