Let's print more money! Labour's latest big idea to fix Britain's economic crisis
Quote:It has hurled billions at the banks without managing to get them lending and trimmed VAT with negligible effect on struggling stores.
Now Labour is considering a new tactic to deal with the recession - simply print more money.
With interest rates expected to hit their lowest level in 300 years today, the Government might be forced to create the billions it needs to launch another bank rescue scheme.
Chancellor Alistair Darling and Bank of England governor Mervyn King were said to be contemplating the remarkable and risky measure used with catastrophic consequences by Robert Mugabe in Zimbabwe.
The possibility emerged as:
* The Bank was expected today to announce a cut of up to 1 per cent in the base rate, currently 2 per cent, with the prospect of it soon falling to zero.
* Pressure was growing on Gordon Brown to reverse the 2.5 per cent cut in VAT, which will cost £12.5billion, and use the money to cut income tax or national insurance.
* A total of 3,000 jobs were under threat including 1,230 at Marks & Spencer, which announced that it was closing 27 stores.
The prospect of what is known as ' quantitative easing' - printing money - emerged as Mr Darling gave a clear sign that the recession this year will be worse than expected.
Such a step would mark a dramatic moment in British economic history, ending decades of trying to limit the growth of the money supply.
It would also mean an end to the decade-old independence of the Bank of England as ministers took charge of what would be a politically-sensitive policy.
And it would risk driving down the value of the pound, which is already under intense pressure in the money markets in the face of low interest rates and fears of soaring Government borrowing.
Margaret Thatcher won the battle against inflation by imposing strict housekeeping rules which kept a lid on the amount of cash in circulation.
Zimbabwe is an example of an economy where reckless printing of money has led to stratospheric levels of inflation, with a loaf of bread costing millions of dollars. Weimar Germany in the 1930s was a similar story.
If base rates fall to near zero the Treasury and the Bank of England will have lost one of their only weapons for stimulating growth.
Printing more money would generate cash which would be used to buy so-called toxic assets - bad loans - from ailing banks, allowing them in turn to start lending to businesses and homebuyers again.
Although economists say the policy is fraught with dangers, officials say that with prices plummeting, there is less risk that printing money will trigger inflation.
'It's sensible contingency planning, but we are not there yet,' a Treasury source said last night.
Mr Darling said if interest rates neared zero then the Government would work 'hand in hand' with the Bank to agree how much money to print.
In effect it would mean the Bank giving up the policy-making independence it was given when Gordon Brown was Chancellor in 1997.
Mr Darling hinted that he might be forced to revise the forecast he unveiled barely two months ago for a return to economic growth next summer.
The downturn has accelerated faster than the Treasury expected, with tax revenues 'falling off a cliff'.
The Chancellor said Britain was 'far from through' the recession. 'This year is going to be difficult. There are going to be some tough calls.'
Shadow Chancellor George Osborne warned that Government borrowing could be as much as £18billion higher next year, and as much as £50billion higher in 2010, if the Government has over-estimated its growth forecasts for next year.
'It appears that Alistair Darling is already trying to wriggle out of the economic forecasts he made just weeks ago, which as we pointed out at the time were more optimistic than most commentators believed,' he said.
The Chancellor's stark assessment of the economic prospects overshadowed Gordon Brown's attempts to start the year on the front foot.
The Prime Minister opened a three-day tour of the country by announcing a £140 million scheme to create 35,000 apprenticeships by the end of next year.
Today the Cabinet will meet in Liverpool, the third time it has gathered outside London in recent months, to demonstrate what the Prime Minister says is the Government's willingness to listen to concerns beyond Westminster.
Figures suggest that each regional Cabinet meeting, held previously in Birmingham and Leeds, costs the taxpayer about £200,000.
Mr Brown repeated that he was not thinking about holding a snap election this spring even if Labour's poll ratings improve further.
'I've no intention of even thinking about an election,' he said. 'We are getting on with the business of trying to sort out the problems that arise.'
Pound fights back at euro
The pound is at last gaining ground against the euro, yesterday rising to its highest level for three weeks.
After days of the two currencies being virtually equal, the pound rose to 1.11 euros from 1.09.
The latest news will be a welcome boost to industry, as investors have shunned Britain's weak currency.
Neil Jones, at Mizuho Corporate Bank in London, said: 'There's been a change in sentiment for sterling.'
The pound has weakened steadily against the euro since October as the Bank of England repeatedly slashed interest rates in response to the financial crisis.
Just after Christmas the pound almost fell to parity the euro, but since then it has been gaining some lost ground.
At the same time, this week the euro itself has been falling against other currencies. It is thought that the European Central Bank might slash its own base rate from 2.5 per cent next week.
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