As signs of economic improvement begin to appear, the Bank of England’s Monetary Policy Commission has decided to hold off on engaging in more quantitative easing until there are stronger signs that the financial situation is definitely improving.
Quantitative easing (QE) is a process in which the Bank of England prints money and uses it to buy back government debt from the big banks. This means that the banks themselves have more liquid capital and, in theory, is supposed to result in them lending more money to businesses and individuals, such as those seeking a mortgage. The Bank maintains that the policy has made things better as a whole, but many critics say that QE has failed to boost lending by a significant amount and will be glad to hear the policy is on pause for the moment.
The Funding for Lending scheme and retail figures from September are both showing positive signs, giving the bank confidence that they may not need to engage on such large scale projects in the future. However, others are sceptical and believe that the Bank will still need to rely on QE, such as Howard Archer, the chief UK and European economist at IHS: “We believe the odds are still heavily slanted towards more Bank of England stimulus in the fourth quarter. Although the economy is currently showing some signs of improvement and inflation could be sticky over the coming months, it is extended weak economic activity rather than inflation that remains the greatest risk facing the UK economy.”
Of course, predictions like this are hard to back up, as the economic situation is very difficult to get a hold on and is constantly changing, something which is felt keenly by the government, with even Business Secretary Vince Cable fretting over the issue: “Projecting and predicting how we get out of this crisis is very difficult indeed.”