Speaking at the annual congress of the European Economic Association in Barcelona yesterday, Bean warned that the current economic environment could delay the money dripping down into the real economy into the next decade.
The Bank of England has currently injected more than £125bn into the UK economy through the buying of Government gilts and will add another £50bn over the coming months. It hoped that gilt-holding institutions would deposit the money into the banks who would in turn lend it out.
Bean says: “Under normal circumstances, when the asset purchases are financed by the issuance of additional central bank money, one would also expect the increase in commercial bank reserves to lead to increased lending. However, when banks are trying to de-leverage, such additional reserves are more likely to be hoarded.”
The deputy governor says this happened during the Japanese experiment with quantitative easing in the early part of this decade expects the same to happen to UK banks.
He says: “It is very early to draw conclusions on the efficacy of these measures, as the transmission lags through to nominal spending are likely to be quite long. Moreover, even in some years time, it will still be difficult to draw firm conclusions, as the counterfactual is bound to be uncertain.”
But Bean says the initial responses to these measures have been “moderately encouraging” – he says Government bond yields fell significantly at the start of the programme, and now yields appear to be around 50 to 75 basis points lower than they would otherwise be.