‘Bank calls end to quantitative easing’
February 12, 2010 at 3:56 pm
The Bank of England has just announced an end to the practice of quantitative easing, where excess cash is printed off and injected back into the economy. It has been surrounded by controversy since it began, but it was seen by many experts as the only way to stimulate the economy when it was failing to react to the lower interest rates.
The quantitative easing programme has seen £200 billion pumped into the economy since the start of the recession. Many economists predicted that the programme would end earlier, but it carried on throughout the recession until the bank announced that there is now enough money in the system. However, although it has officially come to an end, the bank has refused to rule out using it again in the near future if the economy continues to struggle.
The first line of defence, the reducing of interest rates, failed to have the desired effect of increasing lending again, even though the rates had been reduced to their lowest possible level. Indeed, the bank has now decided to keep interest rates at just 0.5% for the 11th month in a row.
Many analysts will now be asking the important question of whether it actually worked. It is true that bank lending is still very low, but it won’t really be clear just how successful or unsuccessful it has been for some time to come.
Although many financial institutions simply held onto the extra money rather than lending it out, most analysts agree that without the quantitative easing programme, the economy would be in a worse position now.
