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Page last updated at 08:41 GMT, Friday, 7 October 2011 09:41 UK

'Credible fiscal plan' behind QE

Chancellor George Osborne has said that more quantitative easing (QE) is the right measure to take to help the British economy.

Yesterday the Bank of England said it would inject an extra £75bn into the economy through its QE programme. The measure, last used nearly two years ago, means the it will make money available to banks to encourage them to provide more cheap loans.

Despite criticising a previous round of quantitative easing as "the last resort of desperate governments", Mr Osborne told Today presenter Justin Webb it is now the right move to make:

"What I've always maintained is that in order to undertake that radical monetary action, in order to undertake policies like QE, you have to anchor it in credible fiscal policies, so the world believes you're not trying to inflate your way out of your debts, you're actually prepared to pay off your debts with a credible fiscal plan," he said.

"And I think that's why having both a credible fiscal plan, plus the radical monetary action shows that the British authorities at the moment, unlike many of the other authorities in the world, are able to use all the tools available to deal with the worsening global debt storm and ensuring that Britain can ride out that storm."

Asked about the decision by the credit ratings agency Moody's to downgrade its debt ratings for 12 British banks because of concerns about the strength of government support, Mr Osborne said he believed it was a response to the government's plan to separate high street banking from investment activities.

"People ask me how are you going to avoid Britain and the British taxpayer bailing out banks in the future. This government is taking steps to do that and therefore credit ratings agencies and others will say well actually these banks have got to show they can pay their way in the world and I'm confident that British banks are well capitalised, they are liquid they are not experiencing the kinds of problems come of the banks in the eurozone are experiencing at the moment."

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