David Prosser: The Bank sticks to its guns on QE
Wednesday 14 October 2009
Outlook We will never know for sure whether quantitative easing has worked, says Charlie Bean, the deputy governor of the Bank of England. Well, in one sense, that's a statement of the obvious: the British economy might be in a much worse state had we not had QE – as Mr Bean says, we simply cannot know.
Still, the deputy governor's comments yesterday must represent an admission of disappointment, if not outright failure. Despite pumping £175bn into the economy, the Bank has failed to achieve the increase in the money supply it targeted six months ago. There may be very understandable reasons for that – not least, that banks have been compelled to improve their capital adequacy rather than lend more money – but the very fact that Mr Bean feels the need to explain that we might have been worse off without QE tells you that we are not as well off as he once hoped we might be.
As the deputy governor says, this is to some extent an intellectual debate, but his comments will nonetheless provide ammunition to the growing number of QE sceptics. For example, Sir Steve Robson, the former Treasury mandarin, warned last week that QE was having little effect other than to help inflate dangerous asset price bubbles, particularly in the equity and commodity markets.
We know from the minutes of Monetary Policy Committee meetings that the mood of its members is more in tune with calls for an extension of QE than a retreat from the policy. This may be because with interest rates so low, QE is the MPC's only remaining weapon of any power. Still, for if the policy continues to fail to hit its original targets, the criticism will grow.
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