Finance

Bank of England not ‘addicted’ to quantitative easing, says governor Andrew Bailey

The Bank of England is not “addicted” to quantitative easing — a word that should not be used because it has a “very damaging meaning for many people for are suffering”, governor Andrew Bailey has said.

Bailey’s comments came as the central bank announced that it would maintain interest rates at 0.1% and press ahead with the last part of its £895bn quantitative easing programme, which sees the bank buy up bonds in a bid to put downward pressure on borrowing rates.

Bailey hit out at a report published in July by the House of Lords’ economic affairs committee, which questioned whether the Bank of England had an “addiction” to quantitative easing.

“I’m afraid I’m going to be very blunt,” Bailey said during a press conference on 5 August following the Monetary Policy Committee’s publication of its report. “I first of all think that the House of Lords should not use that word ‘addicted’.”

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“Frankly that is a word that has a very damaging meaning for many people who are suffering…I think it is a very poor choice of language. Secondly…I think all three of us [deputy governor Ben Broadbent and deputy governor for markets and banking Dave Ramsden] have spoken on the subject in public over the last 18 months and we’ve made the bank’s position very clear,” said Bailey.

Quantitative easing is one of the central bank’s policy tools that has worked well, playing an important role in terms of the cost of borrowing for companies and individuals, he added.

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Analysts did not expect fireworks at the committee’s meeting and were not surprised by its decision to hold rates.

“[It was a ] mute market reaction given the outcome was predicted by most market participants, with sterling holding steady against the dollar and just below the $1.40 resistance mark,” said Jesús Cabra Guisasola, associate at Validus Risk Management.

“Moving forward, we should expect the first rise in interest rates from the MPC during the second half of 2022, with the market currently pricing for the first hike in June 2022,” he added. “However, if the economy continues growing as expected with inflation above the 2% target, we could see justification for the BoE to act sooner.”

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Some of the monetary policy committee members have recently voiced concerns, with external member and economist at Citigroup Michael Saunders saying last month that the Bank may have to slow down its bond-buying programme “fairly soon”. Saunders, who had questioned how transitory inflation would be, was the only member to vote against continuing the programme, according to the Bank’s statement today.

The meeting was the first without former chief economist at the central bank, Andy Haldane. In his last two MPC meetings, he had voted for quantitative easing to be reduced by £50bn.

To contact the author of this story with feedback or news, email Bérengère Sim

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