Quantitative Easing And UK Monetary Policy

One of the biggest policies undertaken in the 12 years of the Labour Government has been printing money, some £170 billion to date, shows George Trefgarne in Quantitative Easing: lessons from history, published today by the Centre for Policy Studies.

There are signs that Quantitative Easing has so far been a success, reducing long-term interest rates, lifting the stock market and improving company balance sheets.

However, the policy carries many significant risks.

• It has already had a serious impact on pension deficits and annuities

• It could be undermining the pound

• It could be very expensive, already having added £14.2 billion to the National Debt.

Unanswered questions include:

• How and when will it end?

• Will it cause inflation?

• What criteria should we use to judge how it is working?

The policy has also received little scrutiny by Parliament. There has been no primary legislation on QE. The only secondary legislation on QE has been a statutory instrument, exempting the policy from the FSA’s authorization regime.

The Bank of England now controls QE policy. It claims as its authority its independent right to control interest rates. This is a very thin justification for such an important role.

There are useful lessons to be learned from history. On two out of three previous occasions that printing money has been used, it resulted in high inflation. The worst resulted in inflation reaching a record 36.5%.

The political and legislative process for printing money was superior in the past. In 1810 the Bullion Committee was formed by Parliament to scrutinise the policy.

Similarly, today a special Select Committee of Parliament should be formed to:

• scrutinize QE on an ongoing basis;

• report on progress and the risks on an at least quarterly basis; and,

• consider the timing and method by which QE can be safely brought to an end.

The full report can be freely downloaded HERE.

George Trefgarne was interviewed on Radio 4’s World at One programme. Listen here

Topics: Britain, England, Governance, government, Labour Government, long term interest rates, money, printing money, quantitative easing, UK, United Kingdom

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