However, you may have noticed that there was a split vote amongst the Committee last month, and that I voted to maintain the scale of the asset purchase programme at £ billion. 4  BIS Review 159/2009  It is important not to make too much of this difference. I fully recognised the potential benefits of a more expansionary policy given the downside risks to the economy. However, I was also wary of the potential risks of such a policy. My main concern reflected the considerable uncertainty about the degree of spare capacity in the economy and the behaviour of inflation when output is growing at above trend rates. These uncertainties are always present, but come to the fore in situations like the current environment in which there is a very substantial degree of economic slack. In order to keep inflation on track to hit the inflation target this slack needs to be eliminated. However, given the uncertainties about the precise margin of spare capacity and the behaviour of inflation as this spare capacity is being closed, my preference was to aim to grow the economy a little less rapidly. I was also concerned that further substantial injections of liquidity might result in unwarranted increases in some asset prices. I should stress that I do not think there is any strong evidence to suggest that any of the increases in asset prices seen to date are out of line with the improving economic outlook and the desired impact of our asset purchase programme.
There are encouraging signs that these policy actions have been successful and the risk of a severe adverse feedback loop – as households, companies and banks simultaneously try to retrench – has been avoided. The banking system has stabilised. Measures of business and household confidence have recovered significantly. And the most recent ONS estimates for the third quarter suggest that the contraction in consumer and business spending may be beginning to abate. Corporate liquidations and unemployment: better than feared The prompt and large policy actions are likely to be one reason why corporate failures have, to date, not increased by as much as might have been feared. Although output has fallen by more than in either the 1980s or 1990s recessions, liquidations have risen by less than at the same stage of those downturns. Companies have benefited from the fall in debt servicing costs associated with the sharp reduction in Bank Rate and by the Government scheme allowing them to defer tax payments. And by supporting corporate credit markets, the Bank’s asset purchase programme has also helped some firms to bypass banks and access capital markets directly. I fully recognise that the asset purchase programme has not been as of much help to many small and medium-sized enterprises – many of whom are represented here today – who are not able to access capital markets and are largely reliant on bank credit.