The Deputy Governor of the Bank of England, Paul Tucker, signaled his ethos and ambition to take over from Sir Mervyn King by distancing himself from the central banks hardline stance on credit conditions in a speech on Tuesday evening.
Mr Tucker, signaled that the Bank of England plans a change of strategy to ease credit conditions and inject more liquidity into the banking system. Details of the changes could emerge at tonight’s Mansion House dinner in the City tonight.
Mr Tucker, who has made no secret of his ambitions to get the top job at the central bank, said: The authorities, including the Bank of England, need to consider what more we could do to alleviate tight credit conditions in the UK.”
The change in policy is because UK households and businesses are still finding it difficult to borrow at reasonable rates despite interest rates being just 0.50 per cent and interest rates on government debt being at an all-time low. On top of this the £325 billion quantitative easing programme was supposed to inject liquidity into the economy and make it easier for businesses to gain access to finance.
The new policy emphasis contrasts with Sir Mervyn King’s long-held view that only the government, not the central bank should intervene directly to lower banks’ funding costs or reduce borrowing costs for businesses or households, because it represents a subsidy.
However, on Tuesday Mr Tucker’s speech called for the bank and the authorities to work together on credit conditions and that the Bank of England should provide extra liquidity “without strings attached.”
Mr Tucker hinted that regulations covering liquidity could be relaxed to encourage banks to lend.
Andrew Tyrie, chairman of the Treasury committee welcomed the possible change of tack, “I’ve been pressing for something to be done on liquidity for more than a year now,” he said.
“While the banks aren’t functioning properly, the British economy cannot fully recover.”
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