Published: Thu, 12 Mar 2009 19:49:48 +0100

BOE's Barker Says Once Economy Picks Up, Stimulus Has to be Unwound

(CEP News) - The Bank of England policymaker Kate Barker said Thursday that eventually, the UK government's fiscal stimulus will need to be pulled back so as to avoid the risk of high inflation. For now, though, such stimulus is necessary, she said.

Barker said the Bank of England's decision to slash rates to 0.50% is, in her view, not sufficient to completely defuse the deflationary threat.

"The MPC's significant move to increase the money supply will help to support the economy through this difficult period," she said.

Barker said the current recession is already worse than the one experienced by the UK in the 1990s. Barker referred to the further deterioration of the UK's economy in the last month.

However, the economy could pick up quite quickly once it does, she said, forcing an unwinding of stimulus to avoid the trap of inflation.

Eventually, the weak pound sterling and low price of oil will contribute to a recovery, the MPC Member said.

By Megan Ainscow, mainscow@economicnews.ca; edited by Nick Say, nsay@economicnews.ca