Bank of England’s policy tool has made some people richer on paper but small businesses and first-time buyers can’t find any cash
For some it’s just funny money. But for the Federal Reserve and the Bank of England, quantitative easing is currently the best policy tool at their disposal.
The US central bank dropped a clear hint on Wednesday that it was about to crank up the electronic printing presses a third time, while the Old Lady wants to keep the door open for more asset purchases once its current round of QE, taking the total to £375bn, is completed by the autumn.
So it was hardly surprising to find the Bank coming up with a stout defence of its strategy on Thursday. Sure, it conceded, the better-off had gained most from the rise in asset prices triggered by QE but everybody benefited because growth was higher and unemployment lower.
As for the pension funds, which are having 40 fits about falling annuity rates and widening deficits, they should be grateful that QE has pushed up the value of equities and bonds. Bodies representing pensioners gave this argument short shrift.
As far as the wider economy is concerned, QE has not brought an end to the long crisis that began in 2007. Lord Oakeshott, the former Lib Dem Treasury spokesman, says asset purchases have been like an ever expanding air bag: they have cushioned us from the worst effects of the car crash but they cannot put the car back on the road.
The paper wealth of the better-off has been boosted but small businesses have still been starved of cash. What’s more, QE has pushed up the prices of all assets – property and commodities as well as equities and bonds.
That has helped freeze potential first-time buyers out of the housing market and added to the squeeze on real incomes by increasing the cost of fuel and food.