Positive Money response to Bank of England announcement on QE and interest rates cut

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London, 4th August 2016

Fran Boait, Executive Director of Positive Money, commented on the Bank of England’s latest announcement that it will cut interest rates and restart its quantitative easing programme. She said,

“The Bank of England’s measures are unlikely to be effective in supporting growth, and will exacerbate some of the structural problems facing the UK economy.

There was a valid case for deploying QE in 2009, in order to sustain liquidity in the interbank lending market. But we are now confronted with a completely different set of issues.

Low rates and QE work by inflating the value of existing assets and by encouraging households and businesses to borrow more. But these sectors are already highly leveraged and they cannot be expected to indefinitely take on more debt. Post-2009 monetary policy has also been highly regressive. Theresa May recently confirmed that low rates and QE have contributed to inequality.

Instead of doubling down on the policies of the last seven years, the new government should work with the Bank to design monetary policy tools which transmit money directly into the real economy. This could work by using central bank money to finance much-needed infrastructure projects, housebuilding or a cash payment to ordinary citizens. Such an approach is favoured by a growing number of economists, including current and former central bankers from around the world.”

For further comments or to arrange an interview, contact David Clarke at david.clarke@positivemoney.org or on 0207 253 3235.

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