Credit where it’s due: Making QE work for the real economy

Credit where it’s due: Making QE work for the real economy
Document type
Wilkes, Giles
Date of publication
26 February 2010
Trends: economic, social and technology trends affecting business
Business and management
Material type

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Quantitative easing (QE) is the Bank of England’s attempt to boost the economy once interest rates hit zero. £200bn of new Bank reserves has been created to increase the money circulating in the economy and to boost spending. The Bank’s balance sheet has grown from a little larger than that of a provincial building society to several hundred billion pounds. Today, the most important investor in the country is a public servant in Threadneedle Street. In ‘A balancing act: fair solutions to a modern debt crisis', CentreForum argued that it was right to use fiscal policy to support the economy as it toppled into recession.1 If the government had embarked on an austerity programme at the same time as the private sector, an already steep downturn would have turned into a spiralling depression. However, now that the economy seems to have passed its nadir, the sheer size of Britain’s deficit may have left fiscal policy exhausted. The party conferences in the autumn before the election were dominated by arguments about how to cut public spending and reduce borrowing. Only the vital question of timing still divides the parties; CentreForum has argued that a slower pace of government consolidation would be optimal.3 But it is generally agreed that monetary policy is the sole remaining tool for providing a sustained stimulus to the economy. Unfortunately, the conditions that allowed monetary policy to perform this function have changed.

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