Chancellor George Osborne said that he would back further quantitative easing by the Bank of England, should the Monetary Policy Committee decide that more stimulus is warranted.
Such a move would hardly come as a surprise as other major economies have either resorted further stimulus or are expected to do so.
This week, the Bank of Japan cut its rate from an already ultralow 0.1% to a range between 0 and 0.1%, while also announcing an asset purchase programme of over US$60 billion.
The Federal Reserve is expected to follow suit after Friday’s non-farm payrolls data for September showed a massive decline of 95,000, while the unemployment rate remained at 9.6%. Fed Chairman Ben Bernanke has said earlier this month that further stimulus would make sense.
Other high ranking Fed officials have backed more stimulus, noting that inflation was low and unemployment remained at nearly 10%.
Earlier this week, the Bank of England left its interest rate unchanged at 0.5% and decided to maintain the £200 billion QE programme.
Osborne has also said that the spending cuts would be gradual, stretching over four years to minimize the impact on the recovery.
In other news, the US stepped up pressure on China to loosen up the exchange rate of its national currency yuan.
Treasury Secretry Timothy Geithner called on “major emerging economies” to move towards a more market oriented interest rate policy. He was apparently referring to China, stating that its currency yuan was significantly undervalued, which does little to support the ongoing recovery.
“Excess reserve accumulation on a global scale is leading to serious distortions in the international monetary and financial system, and is inhibiting the international adjustment process,” said Geithner.
Back in June, China said it would allow more flexibility in its interest rate policy and the yuan has appreciated by over 2%a against the US dollar since then.
The country reaffirmed its stance in response to Geithner’s appeals, reiterating its pledge to refrain from any sharp moves that would cause the yuan to rise rapidly, hurting domestic exporters, which favor a weak yuan.