© Reuters. FILE PHOTO: Governor of the Bank of England Andrew Bailey poses for a photo on the first day of his new role at Central Bank in London
By William James and Andy Bruce
LONDON (Reuters) – The Bank of England can help spread the cost of coronavirus over society over time, Governor Andrew Bailey said on Wednesday, adding that the UK has a choice if more austerity measures are needed.
Britain has taken unprecedented steps to reduce the economic impact of corona virus blocking, including a plan to pay the wages of millions of employees on leave – one that Finance Minister Rishi Sunak says is too expensive to go on for long.
When asked whether spending cuts would be necessary to restore government finances, Bailey said ITV The (LON 🙂 peston show showed that this was a ministerial matter, but continued to say that the central bank's increased sovereign debt levels opened up new policy options.
"What we can do if the overall credibility of the framework is maintained – and independence (BoE) is very important to it – is that we can help spread the cost of this thing over society over time," said he.
"This is important to me," he added. "We have decisions there and we have to make those decisions."
Prime Minister Boris Johnson's government has said it is not in favor of a return to austerity to rebalance books after a crisis that is likely to trigger a deep downturn and cause a large budget deficit.
The Treasury is concerned that government borrowing from the corona virus could hit a record £ 337 billion ($ 414 billion) this year, the Daily Telegraph said Tuesday, citing an internal document.
Bailey, who replaced Mark Carney as governor less than two months ago, said the latest data showed that Britain was in the midst of a very sharp recession.
EVERYTHING CLEAR FOR MORE QE
It is now "fairly clear" that financial markets are expecting the BoE to further expand their stimulus plans for bond purchases, Bailey said.
Last week, the BoE kept its base rate at an all-time low of 0.1%, leaving its target for the purchase of bonds, most of them British government debt, at £ 645 billion.
Two of his nine policymakers – Michael Saunders and Jonathan Haskel – voted to buy bonds for another £ 100 billion in firepower, and Bailey said the BoE is ready to act again.
"The majority of us wanted to keep the option open and clearly state how we did it. Jonathan and Michael thought it would be better to actually number it now," Bailey told ITV, adding This was a "completely reasonable" view.
England tentatively started blocking corona viruses on Wednesday. Some people who cannot do their jobs at home are asked to return to work.
Bailey said it was right to be careful about the possibility of a second climax of an illness that killed more than 40,000 Britons.
"I think if there was a significant second wave, it would damage public confidence and then obviously return to business," said Bailey.
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