The Monetary Policy Committee [MPC] also said that the inflation-driven “squeeze on households’ real incomes” and the Government’s programme of spending cuts will “continue to weigh on domestic spending” for some time to come. The “deterioration in the outlook” meant more QE was justified, the Bank said.
Financial experts said the committee’s actions would be a “Titanic” disaster for pensioners, savers and workers approaching retirement. Sir Mervyn suggested that was a price worth paying to save the economy from recession.
The Governor insisted that the MPC’s decisions had been the correct response to events. “The world economy has slowed, America has slowed, China has slowed, and of course particularly the European economy has slowed,” he said. “The world has changed and so has the right policy response.”
The Bank’s decision came after mounting political pressure from ministers worried that Sir Mervyn was not reacting urgently enough to the darkening global economic outlook.