Economy: Quantitative Easing

Lord Barnett Excerpts

Monday 12th November 2012 Lords Chamber

Asked By

[Lord Barnett]

To ask Her Majesty’s Government what evidence there is that quantitative easing is working.

[The Commercial Secretary to the Treasury (Lord Sassoon)]

My Lords, the Bank of England has estimated that the first round of quantitative easing reduced gilt yields by one percentage point, raised real GDP by around 1.5% to 2%, and increased inflation by around three-quarters to one-and-a-half percentage points. The Bank has also launched the funding for lending scheme to reduce bank funding costs and provide a strong incentive to make loans to companies and households cheaper and more easily available.

[Lord Barnett]

My Lords, therefore without QE, the recession would have been even worse. Is the Minister aware that since then, the Governor of the Bank of England said that the MPC would have to “think long and hard” before it restarted QE. The deputy governor said that it would be inappropriate to go on with it because there is no appetite to borrow and invest. On top of that, the chief economist of the Bank of England said recently that the economy is stuttering to start. He said that after knowing all that the Government are now proposing. What else are they going to do?

[Lord Sassoon]

My Lords, first, since the noble Lord talks about the state of the economy, we should recognise that employment is at a record high; inflation, for which the MPC has responsibility, has come down very significantly; the trade deficit is down; and the economy is growing again. We really do not need too much unreasonable doom and gloom. I could cite many other recent quotes from the Bank of England, which has made its position completely clear. In October 2012, the governor said that the MPC stands,

“ready to inject more money into the economy”.

As, when and if it thinks the assessment is right, it is free and able to do it.