Economist calls for end to £200bn stimulus

DeAnne Julius, now chairman of think tank Chatham House, also called for an end to the 200bn monetary stimulus, known as quantitative easing (QE).

She said the fall in unemployment – figures yesterday showed the number out of work fell by 20,000 to 2.45 million, the lowest so far this year – indicated the "trough" of recession had passed, despite the warnings of severe cuts contained in the Comprehensive Spending Review on Wednesday.

"I think we are clearly coming out of the recession and I don't there is too much probability of a double-dip. Business needs to think about the environment we are going into but it looks a bit rosier than some commentators say.

"For a number of reasons Britain is a pretty resilient economy. We are borrowing in our own currency and not the euro as Ireland and Greece and that gives us more respectability providing we handle our deficit responsibly."

Dr Julius, speaking to the Yorkshire Post before giving a lecture at Leeds University Business School on the lessons to be drawn from the global recession, backed a phased withdrawal of QE because of the risk of prolonged inflation, despite current MPC member Adam Posen last month telling Yorkshire business leaders there is a case for considering continuing it to support economic recovery.

"It is time to begin withdrawing the stimulus... Interest rates are very low and the deficit is very large so it is tricky to come out of a situation of extreme policy stimulus like that. I know that people in those positions at the Bank of England are debating very actively about what needs to be done about QE."

Dr Julius, an American economist who is based in Britain, was known as a dove during her time on the MPC because of her reluctance to vote for interest rate rises. The base rate remains at a record low of 0.5 per cent and Dr Julius said she would vote for a quarter-point rise if she was still on the MPC, because it could boost confidence.

"The economy is growing but I don't think it is particularly strong yet.... The financial market always tends to overreact when the MPC changes direction."

She urged the MPC to take into account the fact Britain had spent several months out of recession and said they should look to what happens in two years' time.

Yorkshire firms, particularly exporters and those in advanced manufacturing and high-end products, could play a strong part in a recovery in this region, she added, because of demand from Asia.

"I think it is very important to be in specialised manufacturing in UK and Europe and the West... Finding the niche products and specialist items that other countries need is often a very successful strategy."

'Time to stop the politics of envy'

The political reaction to profits in the financial services sector has gone over the top, DeAnne Julius warned.

Dr Julius, who was on the Bank of England's interest rate-setting panel for four years, said City pay had got out of control but was critical of the way it was exploited by Westminster.

She said: "We have to get over the politics of envy and blame which have contaminated a lot of the attacks on the financial sector over the last couple of years.

"We have to be careful we do not kill the geese that laid the golden egg."