Bank of England ‘addicted to quantitative easing,’ says Lords report

The Bank of England is widely believed to be using quantitative easing (QE) to finance the Government’s deficit during the pandemic which could lose it credibility, a report from the Economic Affairs Committee has said.

Lord Forsyth of Dumlean, chair of the committee, said that the bank 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,” he said.

The committee launched the inquiry because it found that the bank’s quantitative easing programme had not been subject to enough scrutiny, including in parliament, given its size, longevity and economic importance.

The chair said that the scale and persistence of quantitative easing is equivalent to 40 per cent of GDP and requires “significant scrutiny and accountability.”

“However, the Bank has faced few questions until now,” added Lord Forsyth. “Going forward, the Bank must be more transparent, justify the use of QE and show its working.”

The report found that if the bank loses credibility associated with its quantitative easing programme, this would harm its ability to control inflation and maintain financial stability.

It also accused the bank of not publishing sufficient information on quantitative easing for the public and parliament to hold it accountable for its decisions.

Forsyth urged the bank to explain how it will curb inflation if it is more than just short term and said that the bank 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,” explained Forsyth. “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.”

He concluded: "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."

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