Banking: Quantitative Easing

Lord Barnett Excerpts

Wednesday 27th March 2013 Lords Chamber

Asked by

[Lord Barnett]

To ask Her Majesty’s Government whether they agree with Sir Mervyn King, the Governor of the Bank of England, that quantitative easing should be increased by £25 billion, as stated at the most recent meeting of the Monetary Policy Committee.

[Lord Newby]

My Lords, the Bank of England Act 1998 gives powers of operational responsibility for monetary policy to the independent Monetary Policy Committee of the Bank of England. It is for the MPC to make decisions on monetary policy, including the scale of quantitative easing, based on its own judgment and the balance of risks to inflation in the medium term.

[Lord Barnett]

My Lords, under Section 19 of that Act the Chancellor has power by order to stop the committee doing that just that. Can I assume that as he did not say he did, he does not oppose the idea of there being more QE? On the other hand, we have a new remit for the new Governor of the Bank of England. The Chancellor said:

“the Monetary Policy Committee may need to use unconventional monetary instruments to support the economy”.—[Official Report, 20/3/13; col. 935.]

Does that not mean that there will have to be a change to the Bank of England Act? Without it, how can there be such a change?

[Lord Newby]

My Lords, to deal with that last point I will say that we do not need a change in the Bank of England Act because its basic provisions—namely, of inflation-targeting, and this year, as in previous years, we have a 2% inflation target—remain in place. The Chancellor has suggested, in changing the remit, that it would be appropriate for the MPC to deploy new explicit forward guidance, including intermediate thresholds, in order to influence expectations and meet its objectives more effectively.