Finance: QE Worked, Bank of England Says



In its quarterly bulletin, the Bank of England reported that its first round quantitative easing (QE), which occurred in the form of asset purchases, did in fact give the economy a measurable boost.

However, the bank warns that the UK economy cannot count on any further quantitative easing to have the same positive impact.

Boosted figures

The bank report analysis shows that from March 2009 to January 2010, its 200 billion pounds in purchases of long-dated gilts boosted the gross domestic product (GDP) anywhere from 1.5 to 2 percent.

The Bank’s chief economist Spencer Dale explained in the foreword to the bulletin: “The evidence presented in the article suggests that the effects were economically significant.”

He continued, saying, “But there is considerable uncertainty around these estimates, and the precise impact of asset purchases or sales is likely to vary depending on the circumstances in which they are conducted.”

In the report’s foreword, Dale also remarked that conditions in financial markets deteriorated between the Bank bulletins published in June and August.

More QE?

This bank bulletin showing positive results from asset purchases comes about as economists increasingly expect another round of quantitative easing. Economists say that the economic recovery is faltering and expect a round of QE to boost the economy out of the dangers of contraction.

In response to these issues, Bank economist Dale also said, “The Monetary Policy Committee will continue to monitor and assess the impact of its asset purchases to date, in order to inform any future decisions on either selling the assets back or making further purchases.”

Though many policymakers, including Martin Weale, have said further QE would work, economists and Bank officials have voiced doubts about its effectiveness, as returns on government debt have already hit record-lows.

Bank researchers also report that the first round of QE may have added between 0.75 and 1.5% to the current 4.5% inflation, which is more than twice the Bank of England’s target inflation rate.

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