Haldane criticises the Bank for maintaining ultra-low interest rates and massive quantitative easing stimulus. A higher inflation narrative could become the dominant theme, he says, arguing that if policy changes are left too late, the Bank will then have to impose larger and faster rate increases. Such a monetary handbrake turn means everyone would lose, he says.
Bank Governor Andrew Bailey describes such warnings as inflation alarmism, dismissing concerns about the dangers of QE. I can reveal he now faces opposition from the powerful House of Lords Economic Affairs committee which will on Friday publish a report entitled: Quantitative Easing – a dangerous addiction?
During their QE inquiry, peers heard from heavyweight central bankers and policymakers from across the world including Bailey himself. This committee includes leading economists not least former Bank Governor Mervyn King.
We are very concerned about the Bank of Englands continued use of QE our upcoming report reflects that concern, a committee source tells me. We question if the Bank is taking the risk of inflation seriously enough – and argue it isnt providing reasoning for some of its recent conclusions.
Between 2009 and 2019, the Banks QE programme amounted to £425bn, but since 2020 has expanded to £875bn. So weve implemented more QE during this pandemic than during the entire previous decade. Whats more, pre-Covid QE remained largely within the financial system, so was less inflationary that the latest variant which, as this report makes clear, has been used to finance furlough and business support schemes.