quantitative easing. It appears to be its answer to all the country’s economic problems and by the end of 2021, the Bank will own an eye-watering £875bn of government bonds and £20bn in corporate bonds,” the committee’s chairman, Michael Forsyth, said.
Accordingly, the members of the committee called on the central bank to reveal its plans to unwind this multi-billion pound bond-buying programme, as the scale of QE currently amounts to 40 per cent of Britain’s economic output.
“Going forwards, the Bank must be more transparent, justify the use of QE and show it’s working,” Lord Forsyth noted. “The Bank needs to explain how it will curb inflation if it is more than just short term. It also needs to do more to mitigate widening wealth inequalities that have resulted from rising asset prices caused by QE.”
Following its recent inquiry, the committee claimed that QE has been widely used by the Bank of England to finance the government’s budget deficit amid the global health crisis. Accordingly, if this perception continues to grow, the central bank could lose its credibility, thereby destroying the BoE’s ability to control inflation and maintain financial stability, they added.
Responding to these claims, the Bank issued a statement in which it denied the allegations, adding that there is no evidence to support this assertion. “QE and the package of other measures announced over the past 18 months have lowered borrowing costs right across the economy, providing much needed support to all borrowers at a time of extreme economic stress,” the statement read. “It is wrong to suggest that the MPC has pursued another policy, namely to finance the government’s borrowing during the crisis. The evidence does not support this assertion.”
According to Lord Forsyth, the committee came to these conclusions based on evidence obtained from a range of experts from across the globe, including former central bankers from the European Central Bank, the US Federal Reserve and the Bank of Japan. “QE is a serious danger to the long-term health of the public finances. A clear plan on how QE will be unwound is necessary, and this plan must be made public,” he added.
