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Osborne leans on King

15 June 2012

15 June 2012

What we saw at the Mansion House last night gave us some hints of where British economic policy will go if the Eurozone start to fragment. For the moment, Osborne is persisting in getting the Bank of England to do the heavy lifting using monetary policy rather than attempting a fiscal stimulus. The first line of defence is what one source described to me as ‘highly active monetary policy.’

The fact that the chancellor has persuaded the notoriously prickly Bank Governor to offer loans against weaker security is a definite success for him and a sign that he’s developed a far better relationship with King than either Brown or Darling. There is, though, as Robert Peston reports still a debate ongoing about whether the Treasury will indemnify the Bank against any possible losses from these schemes. While both Fraser and Allister Heath are sceptical about the whole idea.

We know that there are currently further ‘growth’ measures scheduled to be announced in July. These will involve the government guaranteeing housing and infrastructure projects in an attempt to get the construction sector moving again. But the big question remains, what else will Osborne do if — or should that be when — the Eurozone does start to fragment.

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