Former Bank governor, Lord Eddie George, revealed at a Treasury Committee meeting reviewing ‘The Monetary Policy Committee (MPC) of the Bank of England: 10 Years On’, that he and his colleagues had little choice but to keep interest rates low in order to prevent a UK economic slump.
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He said: “We knew that we were having to stimulate consumer spending. We knew we had pushed it up to levels which couldn’t possibly be sustained into the medium and long-term. But for the time being, if we had not done that, the UK economy would have gone into recession just as the United States did.”
Lord George explained that while the MPC tried hard to stay within the inflationary targets in order to stimulate consumer spending, it was aware that these levels could not be sustained and would cause problems later on.
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Under Lord George’s governorship, rates were slashed from 6 per cent in 2001 to 3.5 per cent in 2003, pushing house price inflation above 25 per cent.
Simon Webster, managing director at Facts & Figures Financial Planners Ltd, commented: “Given the choice between a recession and house price increases, I would choose house price increases.
“For those not already on the property ladder and who are struggling to do so, this may seem unfair, but these people could have lost their jobs if there had been a recession. I think Lord George chose the lesser of two evils.”
