FSA chairman Lord Turner has called for new and innovative solutions to the current economic predicament in the UK.

In his Mansion House speech last night Turner said the policy response has to include, and has included, unconventional monetary policies – quantitative easing (QE) – which as best we can tell has produced a path of real output growth and inflation slightly higher than would otherwise have occurred.

However, Turner, who many see as on the short list to be the next governor of the Bank of England, was doubtful as to the long-term efficacy of QE.

He said: ” Quantitative easing alone may be subject to declining marginal impact, the economy facing a liquidity trap in which replacing private sector holdings of bonds with private sector holdings of money has little impact on behaviour and thus on demand.

“So optimal policy also needs to include a willingness to employ still more innovative and unconventional policies, and to consider the combined impact of multiple policy levers – monetary policy, Bank of England liquidity insurance, prudential regulation and direct support to real economy lending – which we used either to consider quite separately, or else avoid entirely.”

He added: “We need to be ready… to consider further policy innovations, and further integration of different aspects of policy – to overcome the powerful economic headwinds created by deleveraging across the developed world economies.

“Those headwinds would be severe enough even if all we faced – across the developed economies – was post-crisis deleveraging. But the way forward is further complicated by the crisis in the Eurozone.”