Bank May Start Printing Money Soon

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Updated on 17 February 2009 | 9 Comments

We heard more rotten economic news today. The Bank of England may have start to printing money soon, and that means the pound could fall further.

Mervyn King, the Governor of the Bank of England, said today that the current measures to revive lending may not work. He also spoke about a `deep recession' and said `further easing in monetary policy may well be required,' according to Bloomberg.

In other words, cutting the base rate to zero looks likely, and the Bank looks set to begin quantitative easing.  It will start buying corporate bonds next week.

The bank also cut its forecasts for economic output and inflation in 2009. On top of all that, unemployment rose to 1.97 million in January - the highest figure since August 1997.

What now?

The pound has dropped against the dollar this afternoon, and I suspect we'll see further falls.

That's bad news for those of us who want to travel or invest overseas, but it's good news for exporters who will be able to sell goods more cheaply abroad. A falling pound should boost prices in the UK and reduce the chances of the UK experiencing deflation.

Another concern is that Mervyn King may be too aggressive in his attempts to boost the money supply. If that happens we could suddenly switch from worrying about deflation to worrying about too much inflation. It's very hard to know what the correct balance is.

So overall, a depressing day but I'm determined not to get too gloomy. We will get out of this mess one day. It just may take a while...

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