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Gilt spree isn’t paying off

Leading economists say the Bank of England’s quantitative easing measure has done nothing to improve the economic situation.

At a Treasury select committee Budget evidence session on Monday, Capital Economics managing director Roger Bootle said there was no evidence to suggest that the £75bn of quantitative easing had worked either to boost bank lending or to drive up gilt prices.

Bootle said the BoE and the Treasury were worried about how to reverse quantitative easing and were unlikely to increase the size and scope of the scheme until a credible exit strategy had been developed.

National Institute for Economic and Social Research director Dr Martin Weale said he felt QE had been “misapplied” in focusing on buying gilts rather than buying corporate bonds.

Weale said: “I think, if the policy had focused on the corpor- ate debt market, then we would have had much more liquidity in that market. The operations of the Bank of England would have to some extent compensated for the unwillingness of the joint-stock banks to lend instead of merely creating a bit of extra liquidity and hoping the joint-stock banks would have lent.”

Bootle said: “First of all, let’s get clear through what channels is quantitative easing going to work and it seems to me there are potentially two. One is it is going to drive up asset prices and the first part of that channel is driving up gilt prices and it did that by a bit but it was not spectacular and the second channel is to boost bank lending as banks awash with liquidity are des- igned to lend a lot more. Well, there is not a great deal of evidence of that either.”

John Charcol senior technical manager Ray Boulger said: “So far, there is no evidence that quantitative easing has worked. To be fair to the Bank of England, it may be too early to make that judgement. There is no evidence that any banks other than Barclays are lending any more money.”


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