George Osborne is sticking to his plan to leave the heavy lifting on Britain’s economy to Mark Carney. The pledge by the chancellor of the exchequer to continue to tackle the budget deficit means the onus remains on the Bank of England governor and his colleagues to drive economic growth. Tight government purse strings, along with the shackles of a struggling euro area, will spur the Monetary Policy Committee to keep the key interest rate at a record-low 0.5 percent today.
“The fiscal numbers aren’t doing an awful lot to stimulate the economy,” said Peter Dixon, an economist at Commerzbank AG in London. “The MPC will have to do a lot of work, but I guess that’s the compact which the two sides implicitly agreed to — the government gets the deficit down and the bank does what it can to stimulate the recovery.”
With a general election in five months, Osborne is looking to entice voters with his approach to fiscal responsibility, while the MPC has highlighted the drag from deficit-reduction plans. In addition to austerity, at the forefront of Carney’s concerns is the weakness in the euro area, where European Central Bank policy makers led by Mario Draghi are debating if they need to pump even more stimulus to resuscitate the economy.