Within the minutes of its last meeting, the MPC revealed that it decided to hold quantitative easing at £125bn because it does not yet have enough data to prove the scheme is working.
The report says: “There had not been enough clear evidence to suggest that the £125bn target should be changed. The Committee had not learnt much from developments over the past month that would enable it to assess whether the programme would prove more or less effective than it had judged previously.”
The MPC says underlying broad money growth, which is the target, had picked up since the turn of the year, although the monthly money numbers were volatile. It says more reliable quarterly numbers were due to be published next month.
But the committee is hopeful that the money will eventually find its way down to borrowers, if not directly through bank deposits, then indirectly through an increase in institutional investors buying corporate debt rather than gilts.
The report says: “Companies might use the proceeds from the increased issuance of corporate securities to reduce bank debt rather than increase deposits. If the asset purchases helped banks and businesses to repair their balance sheets, that should support bank lending and money spending in the future.”
Royal London Asset Management’s economist Ian Kernohan says: “It is the stock rather than the flow of quantitative easing purchases which provides the monetary stimulus and at 8 per cent of GDP, £125bn is a considerable sum. I anticipate that the inflation projection in next month’s Inflation Report will show CPI close to target, assuming unchanging policy.
“The lagged effect of 0.5 per cent bank rate and £125bn of QE will be enough to bring inflation back to target two years from now. The Bank is no longer in fire fighting mode; we’re back to a more nuanced touch on tiller approach to monetary policy.