Finance News

Independent Consultancy says QE has Failed

The Bank of England’s policy of quantitative easing is not only not working but is also making a lot of people worse off according to a new report from economic consultancy firm CEBR. The report says that all households have lost out, though pensioners have been hit the hardest.

So far, banks have had £325billion of funds spent on them by the Bank of England, which buys UK government bonds from them. They are currently spending another £50billion as well. The idea is that the banks will take the money they receive from selling the bonds and use it as extra capital to lend to small businesses and individuals, though other reports have said that this is not happening anyway.

There have already been questions raised about how much quantitative easing is contributing to the economy, and groups of MPs have asked the Bank to conduct a review and find out if it is working. The bank’s report claimed that all households were better off due to QE, though admitted that the top 5% most wealthy households in the country had benefited far more than anybody else.

The Monetary Policy Commission are meeting this week to decide whether to continue injecting cash into the banks and there is little doubt they will decide to go ahead with the move.

Ros Altmann, the director general of Saga, argues with this claim and uses the latest CEBR report to do so: “CEBR estimates that real incomes for the over-50s would have been 1.5% higher without QE. This group comprises 21 million people and represents more than half of UK households and nearly half of total domestic consumption […] The effects of these factors are not confined to those pensioners directly affected because the impact of their spending spreads out through the economy through those who supply them with goods and services.”

If the MPC decide to carry on with the policy of QE, then there could be another round of spending in November. Some experts have estimated that £500billion will have been given to the banks by 2014.