Morning:
9°c
THE BANK of England sets off for uncharted waters today, embarking on its long-awaited policy of quantitative easing or increasing the money supply. It may not actually be printing more money but the effect is the same. It will be buying from the banks either government bonds or corporate bonds, the quality and quantity of which are not yet known, and paying for them by increasing the sums it holds on deposit for the banks. With an increase in the supply of money, the banks may feel more confident about lending. Easing the supply of credit is the real priority for the economy.
This measure obviously has its risks but they are risks worth taking. The Government has exhausted all the other options to get the banks lending again, including guaranteeing its loans to business, but they have not worked, at least, not yet. This is the equivalent of throwing the kitchen sink at the problem but if the kitchen sink is all we have, it is worth a try. It risks a return of inflation but the Bank of England's Monetary Policy Committee, or MPC, will be monitoring the effect of the policy monthly, and if inflation heads above the target rate of two per cent, it can reverse. The problem right now is deflation but the MPC will have to remain vigilant lest things go too far in the opposite direction.
Today, the Bank may well also reduce base rates further by halving its already unprecedentedly low rate of one per cent. This would be, of course, excellent news for people on tracker mortgages. It may help drive banks to lend more freely, rather than get near-zero rates for hoarding their money, but there are disadvantages. If savers get next to no return on their cash, they are less likely to invest it, which means banks will have less cash to lend. It is likely to diminish banks' profitability and, as we report today, it may result in a return to bank charges. And it will hit savers hard. We need some vehicle to help savers: perhaps a new government-backed ISA.Increasing the money supply is the likeliest prospect for reversing the downturn. Let's hope.
City Hall scrutiny
CRIMINAL charges against individuals whose projects were supported by Lee Jasper, Ken Livingstone's equality adviser, are, as we report today, increasingly likely. The scandal, which dogged the latter part of Mr Livingstone's mayoralty, involved the award of £3.5 million of City Hall funds to associates of Mr Jasper, but had little or nothing to show for it. Scotland Yard has investigated six of the suspect projects and has now arrested nine people. It has passed two cases to the Crown Prosecution Service with a recommendation for prosecution. Four investigations are continuing.
What this demonstrates is that the Standard was right to pursue this issue. There should be close scrutiny of the use of public funds, and allegations of corrupt use of those funds should be investigated without fear or favour. This is not political bias or the result of any animus against Mr Livingstone or his allies. If the present Mayor, Boris Johnson, were to be associated with similar allegations about an abuse of LDA funds, which are under his control, we should pursue the matter with the same vigour. Such scrutiny is a matter of public interest and this paper will continue to maintain it.
Some good news
THE GOOD news is that, even with the battering of the banking system, the City of London is still rated as the top global financial centre for a range of services by an international study published by the City of London. New York has the edge as the top banking sector but in other areas like insurance and asset management, London is ahead of the field. Plainly, notwithstanding everything that has happened, the City still has the skills and the reputation to succeed: that's surely something to celebrate.
