Lords: Bank of England has become “addicted” to quantitative easing
An influential House of Lords committee has warned the Bank of England has become “addicted” to quantitative easing over recent years amid spiralling numbers.
In a report penned by authors including former Bank Governor Mervyn King, the peers warned the Bank was not transparent enough around its decision-making and that the perception the Bank had indulged in significant QE to finance the Government response to the pandemic could harm the institution’s credibility.
Lord Forsyth of Drumlean, who chaired the Committee, said “going forward, the Bank must be more transparent, justify the use of QE and show its working.”
Read more: Mounting inflation could trigger early end to BoE’s bond buying
The Committee also called on the Bank to set out a strategy for curbing inflation amid rising prices.
June data suggested annual inflation now sits at 2.5 per cent, above the Bank’s 2 per cent target rate, and analysts both inside and outside Threadneedle Street expect it to continue its upward ascent.
Governor Andrew Bailey has been insistent that the inflationary pressures are short-term and temporary as lockdown lifts.
But a number of hawkish City watchers are concerned that the Bank is complacent about the risks of high inflation, especially after the departure of Chief Economist Andy Haldane.
Lord Forsyth said “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 continued.
The Bank of England told the FT it was “wrong” to suggest the Bank had political motives in unleashing a wave of QE during the pandemic and that the “the MPC will continue to assess the outlook for inflation and economic activity and to set monetary policy as necessary in order to achieve a sustainable return of inflation to the 2 per cent target”.
Read more: Former BoE governor Sir Mervyn King warns that increasing QE would be ‘premature’