By Chris Giles
The most extraordinary experiment in the Bank of England’s 300-year history marked its fifth birthday on Wednesday with British output still languishing 1.4 per cent below its pre-crisis peak.
The BoE showed it had the ammunition to attack the economic crisis at its worst moment in 2009 when it printed £375bn of new money and pumped it into household and company bank accounts by purchasing government bonds. Yet the merits of quantitative easing still divide opinion and the debates it prompted are far from resolved.
As a means of economic stabilisation, QE appears to have worked. Its genesis marked the nadir of the economic crisis, with confidence, orders and output recovering after its introduction. Some people argue that this was a modest achievement for such a huge outlay, and that £375bn would have been better spent on something else. Critics who said printing money would drive the UK down Zimbabwe’s road to hyperinflation and bankruptcy failed to read the economic runes. But the authorities have also taken a reputational hit. In 2009, the BoE thought it had solved the immediate crisis and could end QE once bond purchases hit £200bn. It had to wait until 2013 for a genuine recovery and spent almost the same again.
Nor is there any easy way out. Buying government bonds, once seen as temporary, looks much more permanent. The BoE said last month it would not consider selling the assets it bought until it has raised interest rates. It also says that any unwinding of QE must not disrupt the normal financing of the state, meaning it will almost certainly wait until the recovery is on an extremely solid footing. What began as a short-term experiment shows no signs of leaving Britain’s economic lexicon.