The policy of buying assets from banks has been put on hold by the Monetary Policy Commission of the Bank of England, suggesting that they believe the economy may be strong enough to support itself on its own for the moment, no longer needing the boost to lending that quantitative easing (QE) provided.
The policy has already seen £375billion printed and given to the banks, and this pause is being welcomed by those who thought that QE was pushing up inflation and causing savers to lose out. The director general of Saga, Dr. Ros Altmann, was one of those who felt QE negatively impacted savers, particularly pensioners, and said the following after this pause was announced: “The Bank itself has always admitted that Quantitative Easing is a drastic policy experiment which it has introduced because “conventional” policies had been exhausted.
“Creating new money to buy Government bonds may have been worth trying in 2009 to avoid deflation but the economic problem now is stagflation, not depression.” ‘stagflation’ is a situation in which the economy does not grow, but more money is still being printed, reducing the worth of that already held by people.
It is also being emphasised that this is a pause, and that further QE could be announced if the amount of approved loans drops. Economist Philip Shaw warns that whilst it’s definitely a good sign, there could easily be a swing back towards needing more QE: “’This does not necessarily mean that we have seen the last of QE. While there have been some signs of improved economic activity recently, the outlook is subject to downside risks and one cannot rule out the MPC feeling compelled to ease again at some stage.”
Disappointingly for many people, this announcement was not met with a plan to increase inflation either, and the Bank of England is keeping it at 0.5%, as it has since 2009.