Row brews over Bank of England's £50bn QE boost

Over a million pensioners will be poorer as they have bought annuities at artificially depressed rates
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The Independent Online

Businesses and pensioners are at loggerheads over the merits of further monetary stimulus by the Bank of England. The British Chambers of Commerce (BCC) said yesterday that another £50bn of quantitative easing by the Bank's Monetary Policy Committee today is necessary to support the ailing UK economy. David Kern, the chief economist of the BCC, said: "Though many of the benefits of QE feel intangible on the ground, it remains a critical bulwark for the UK financial system and the wider economy."

However Saga, the over-50s services group, has warned that gilt purchases by the Bank are driving down annuity rates, reducing the income of pensioners. "The Bank of England has consistently ignored the dreadful damage that its QE policy has inflicted on anyone coming up to retirement" said Ros Altmann, the director general of Saga. "Around half a million annuities are sold each year and, since 2008, annuity rates have fallen by about 25 per cent, most of which is due to the effect of QE. That means over a million pensioners will be permanently poorer for the rest of their lives, as they have bought an annuity at rates that have been artificially depressed by the Bank of England."

The financial markets are expecting the MPC to announce another £50bn to £75bn of asset purchases today on top of the £275bn it has already bought. Bank of England researchers estimate that the first round of QE, between March 2009 and January 2010, boosted the level of UK GDP by 2 per cent. However asset purchases by the central bank also reduced the yields of the long-term gilts favoured by pension funds.