Page last updated at 12:18 GMT, Thursday, 8 January 2009

No plan to print money - Darling

Chancellor Alastair Darling
The chancellor said Britain was "far from through" the current crisis

Chancellor Alistair Darling has denied he is planning to "print money" in an effort to tackle the downturn.

On Wednesday, he told the Financial Times newspaper he was considering a policy of "quantitative easing" to increase money supply to the economy.

He has now said he is looking at "a range of measures," but "nobody is talking about printing money".

Shadow Chancellor George Osborne said any such move would be "the last resort of a desperate government".

According to the BBC's economics editor Hugh Pym, the Treasury could resort to the use of quantitative easing as falling interest rates become less effective at stimulating the economy.

Instead of literally printing money, the Bank of England would write out cheques to banks in exchange for assets such as corporate investments.

The hope would be that the banks would then lend this extra money to consumers who would in turn go out and spend it.

The government could also borrow more from the Bank of England and then use this money to invest in the economy via spending or tax cuts.

However boosting money supply like this effectively creates inflation - normally avoided by the government, but in seen as a necessary evil in tough economic times, our correspondent said.

Printing money risks losing control of inflation
Shadow Chancellor George Osborne

While this might amount, metaphorically, to "printing money", it is not quite as simple as getting the Bank of England to churn out more notes, he added.

Japanese strategy

Mr Darling was asked about the policy during the Cabinet's visit to Liverpool.

"Nobody is talking about printing money," he said.

"There's a debate to be had about what you do to support the economy as interest rates approach zero, as they are in the United States, but for us that is an entirely hypothetical debate.

"We are looking at a range of measures to support the economy, to support business and to help people, but nobody is talking about printing money."

The US Federal Reserve has already said it will employ quantitative easing, and the policy was also used in Japan in the 1990s - with limited success - in a bid to prevent economic stagnation.

Mr Osborne said it was "irresponsible in the extreme" of Mr Darling to float the idea "carelessly" and risk the confidence of international money markets.

"The very fact that the Treasury is speculating about printing money shows that Gordon Brown has led Britain to the brink of bankruptcy," the shadow chancellor said.

"Printing money is the last resort of desperate governments when all other policies have failed.

"It can't be ruled out as a last resort in the fight against deflation, but in the end printing money risks losing control of inflation and all the economic problems that high inflation brings."

In the FT interview, Mr Darling also said the country was "far from through" the current economic problems.

"This year is going to be difficult. There are going to be some tough calls," he added.

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