Newspaper article The Evening Standard (London, England)

Bank Swingometer Points Away from Printing Cash; ECONOMIC ANALYSIS

Newspaper article The Evening Standard (London, England)

Bank Swingometer Points Away from Printing Cash; ECONOMIC ANALYSIS

Article excerpt

Byline: Russell Lynch

THE scene is set for the mother of all scraps tomorrow as the Bank of England's rate-setters gather for the first time since shock official estimates showed the UK economy growing twice as fast as everybody thought.

The 0.8% growth between July and September stunned the City. Now, as our Swingometer shows, the debate is shifting away from printing more money immediately and bolstering the case of the hawk on the Bank's ninestrong monetary policy committee -- Andrew Sentance, as he pushes for higher interest rates.

At the opposite end of the spectrum, he faces Adam Posen, who wants the Bank to print more money (known as quantitative easing, or QE) and pump an extra [pounds sterling]50 billion into the economy.

Posen's fears of a Japan-style "lost decade" for the UK and permanently damaged growth have won some sympathy -- if no votes yet -- from elsewhere on the committee.

But the strong growth, along with inflation still stubbornly above target at 3.1%, is likely to shake the nerves of colleagues previously ready to join him when a bolder approach may be needed.

Bank Governor Mervyn King points out that the UK is languishing around 10% below where it would have been without recession, and stresses that the recovery is likely to be bumpy. Does one decent growth number -- itself an estimate -- signify all that much for the bigger picture of UK's long-term prospects when [pounds sterling]81 billion in spending cuts are on the way and 2011 is looking grim? Yes, manufacturers are finally showing some hints of the export-led revival we are all pinning our hopes on but they represent a small fraction of UK Plc. Prospects also look less healthy over the winter as the recent steroid boost to the figures from construction fades and the VAT hike kicks in next year.

Meanwhile, house prices are sliding, unemployment is stuck at around 2.5 million for all the signs of a private sector jobs recovery, and consumers are nervy. Families are already facing a real-terms squeeze with wage growth languishing below inflation and now energy firms are adding to the joy by putting up household bills in time for the colder weather. …

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