An influential committee of MPs has called on the Treasury to prepare and publish plans for printing money, should deflation get even worse.

In a report by the Treasury committee today, the cross-party group of MPs noted the risk of “a self-reinforcing deflationary cycle” in the UK, and said a period of ‘quantitative easing’ may be needed.

‘Quantitative easing’ is considered by many analysts to be a euphemism for printing money, although it can increase the amount of money in a country by other means, such as buying assets.

“Interest rates have fallen considerably,” John McFall, committee chairman, said.

“Soon they may be unable to fall further. We need to make sure we are prepared for the worst case scenario and make it clear to the public and businesses that the authorities will take firm action.”

The committee’s report on Alistair Darling’s Pre-Budget report last year cited the lack of bank lending as “the single most critical problem for the economy in the near term”.

Mr McFall: “The government must ensure the availability of credit increases quickly, and there is still far more work to be done.

“Without that increase in availability, the recovery of the economy will be placed in jeopardy. We will continue to use the banking crisis inquiry to demonstrate the continuing need for further action on this front.”

The MPs called for the establishment of a ‘lending panel’ or a suitable agency of the Treasury, to provide regular updates on lending by banks into the real economy.

The committee did not pass judgment on the success or failure of the government’s fiscal stimulus package, saying its effect still remained uncertain.

It did suggest, however, that the cut in VAT may have been misguided.

“The cost of the reduction in VAT is considerable and, in the view of the majority of commentators, the Treasury’s analysis of its impact is an optimistic one,” the report reads.