Bank of England to revisit stimulus program to ensure benefits to households

The British government is set to revise its special economic-stimulus package to ensure that it benefits small-scale businesses and households and not just institutions deemed “too big to fail.”

Data from the Bank of England (BOE) show that the country’s money supply posted another contraction in October. The money supply measures money flowing through the economy.

The BOE said the figure is crucial as it determines whether the billions of pounds of taxpayers money used in the stimulus program are benefiting households and businesses.

Prime Minister Gordon Brown is facing severe criticism after the British economy continued to post negative growth in the third quarter, even after major European economies including Germany and France have declared their regimes out of recession and posted positive development.

Brown’s government is expecting the economy to start turning around in the first quarter of next year.

However, many economic analysts are projecting that the BOE’s monetary-policy committee would again increase the ceiling of its bond-purchasing program with the aim of raising more cash to pump-prime the economy.

The bond-purchasing program currently stands at £200 billion ($335 billion). The BOE is scheduled to review the program in February, although many see the central bank to conduct an early review.

The bond-purchasing program, also known as quantitative easing, is causing stress to the capital markets and even encouraged the government to increase borrowing. Ross Walker, chief UK economist at the Royal Bank of Scotland said the program has failed to provide benefit to small businesses and consumers.

Walker said, “There remains minimal evidence of any significant benefit for large swathes of the real economy.”

Walker’s view is shared by the latest survey made by private polling firm GfK NOP which released its latest study Monday which showed that the UK consumer confidence retreated in November for the first time this year. Consumer confidence posted minus 17 last month from minus 13 in October, after posting a significant gain in the two previous months, jumping from minus 25 in August.

Several economists have suggested that the BOE should realign its strategy to target household consumption.