Business Blog Posts

29 August 2010 Last updated at 06:36 ET

Central banks may have to provide more economic support amid a fragile global recovery, the deputy governor of the Bank of England has warned.

Charles Bean said policymakers had prevented a financial market collapse but further action might be required.

He was speaking at the Economic Policy Symposium in Jackson Hole, Wyoming.

At the same event, US Federal Reserve chief Ben Bernanke set out "unconventional" policy options to boost the US economy.

The event, which attracts leading central bank figures, is this year focused on monetary policy lessons from the recent crisis.

Emergency Use Only

Presenting a report to the conference, Mr Bean said that the Bank of England had been unable to prevent the crisis because its powers - primarily the setting of interest rates - were not powerful enough.

He also hinted that there may be a need to increase so-called quantitative easing - the pumping of new money into the economy.

"The deleveraging process is incomplete, the recovery remains fragile and a considerable margin of spare capacity is yet to be worked off, while further policy action may yet be necessary to keep the recovery on track," he said.

Mr Bean also said that government purchase of securities - such as bonds and shares - was an effective way for central banks to ease financial conditions in a crisis.

However, he insisted that adjustments to interest rates should be used in normal times, with asset purchases "best kept in the locker marked For Emergency Use Only,"

Bank reserves

Later this year, the coalition government will unveil details of new powers for the Bank to try and head off any future crisis.

And Mr Bean used his speech to set out examples how these could underpin "macro-prudential policy" under the Financial Regulations Bill.

These included forcing banks to build up reserves in good times to help them weather downturns, and imposing restrictions on how much money mortgage lenders would provide.

"With an additional objective of managing credit growth and asset prices in order to avoid financial instability, one really wants another instrument that acts more directly on the source of the problem," he said.

"That is what macro-prudential policy is all about."

Mr Beans speech came after data showed that the UK economy grew by more than initially thought in the second quarter of 2010, boosted by a strong performance by the construction sector.

The economy grew by 1.2% in the quarter, the Office for National Statistics ONS said, revising up its initial estimate of 1.1% growth.

That was the fastest rate of quarterly expansion recorded since the first three months of 2001.

But most economists do not expect this level of growth to continue.

Meanwhile, the US Commerce Department revised down its growth estimate for the second quarter.

It now says the US economy grew at an annual rate of 1.6%, down from its first estimate of 2.4%.

Of the policy options set out by Mr Bernanke, top of the list is more quantitative easing.

28 August 2010 Last updated at 22:14 ET

New tax cuts are unlikely within the next five years, Chief Secretary to the Treasury Danny Alexander has said.

In an interview with the Observer newspaper he said the overall tax burden was likely to remain at its current level for "quite some time", to help reduce the UKs deficit.

He appeared to dismiss more tax cuts before 2015 but stressed that a fair, rebalanced tax system was the priority.

Later this week ministers will meet to discuss departmental spending cuts.

In the newspaper interview, Mr Alexander - Chancellor George Osbornes deputy - said: "I think the tax burden is necessary as a significant contribution to getting the countrys finances in order. So it will have to stay at that level for quite some time."

When asked whether a reduction in the overall tax burden was possible once the countrys books were in order, the minister added: "You are asking me to take decisions for five years down the line now and I am not going to do that."

Mr Alexander stressed that a fair, rebalanced tax system was the priority.

He suggested that higher earners would have little respite from tax to look forward to before 2015.

"The plan we set out is to rebalance the tax system," he said.

"We need the tax revenues from the taxes we are putting up to help us reduce the deficit."

In the Budget, Chancellor George Osborne announced plans to cut taxes for the poorest by gradually increasing the personal allowance to �10,000.

However, VAT and capital gains tax were increased.

BBC political correspondent Ben Wright said Mr Alexanders comments "may well irritate some members of the Conservative half of the coalition [who were] hoping that steep spending cuts might open the door to further tax cuts before the next election".

"The government wants to eliminate the structural deficit within five years - and spending cuts are doing most of the work," said our correspondent.

Cabinet ministers will meet later this week to discuss the submissions from most departments to cut their spending by between 25% and 40%.

Departments had been ordered to draw up plans for spending cuts of up to 40% ahead of a comprehensive spending review in October.