The Bank of England will never fully unwind its quantitative easing programme economy, Governor Mark Carney said.
Threadneedle Street embarked on the unprecedented £375 billion QE policy — buying up government debt with electronically created money — in the depths of the recession five years ago as the Monetary Policy Committee slashed interest rates to an all-time low of 0.5 per cent.
Questioned by MPs on the Treasury Select Committee over reversing the policy, Carney said the eventual sale of its gilt stocks would have an “impact” on debt markets but added: “We’re not going to sell £375 billion of gilts. That’s a hypothetical question, purely hypothetical.”
The Canadian added that the “world has changed” and that the size of the Bank’s balance sheet — swollen by the gilt purchases — would be “materially” larger going forward.
Carney added that he did not expect the process of unwinding QE to begin until there had been “several adjustments” in interest rates — suggesting it could take years.
He wants to have the flexibility to cut interest rates again should the recovery hit a sudden hurdle. It would be “more difficult” to adjust QE, but “interest rates are something we could move quickly”.
Carney said his personal view was that there was more slack in the labour market than the 1 per cent-1.5 per cent central view of the MPC.
Rate-setter Martin Weale meanwhile said the rapid slide in unemployment towards the Bank’s current 7 per cent threshold for forward guidance had “reinforced” his doubts over the policy.