Bank of England must spell out the risks of quantitative easing, says Lords report

16 Jul 2021 04:31 PM

The Economic Affairs Committee publishes its report ‘Quantitative easing: a dangerous addiction?’, which urges the Bank of England to explain in more detail why it believes rising inflation will be a short-term phenomenon, and why continuing with its quantitative easing programme until the end of 2021 is the right course of action.

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Background

The role and economic influence of the Bank of England has grown substantially since the global financial crisis, as have expectations that it will intervene in periods of economic uncertainty.  The trend for interventionist monetary policy continued during the COVID-19 pandemic, and led to the doubling of the UK’s quantitative easing (QE) programme.

The Economic Affairs Committee launched this inquiry for several reasons:

Chair’s comments

Lord Forsyth of Drumlean, Chair of the Economic Affairs Committee, recently said: 

"The Bank of England has become addicted to quantitative easing. It appears to be its answer to all the country’s economic problems and by the end of 2021, the Bank will own an eye-watering £875bn of Government bonds and £20bn in corporate bonds.

"The scale and persistence of QE—now equivalent to 40% of GDP—requires significant scrutiny and accountability. However, the Bank has faced few questions until now. Going forward, the Bank must be more transparent, justify the use of QE and show its working. The Bank needs to explain how it will curb inflation if it is more than just short term. It also needs to do more to mitigate widening wealth inequalities that have resulted from rising asset prices caused by QE.

"We took evidence from a wide range of prominent monetary policy experts and practitioners from around the world. These included former central bankers from the Fed, the ECB and the Bank of Japan. We found that central banks all over the world face comparable risks.

"QE is a serious danger to the long-term health of the public finances. A clear plan on how QE will be unwound is necessary, and this plan must be made public."

Key findings

The Committee’s other key findings and conclusions include: 

Further information