Quantitative easing ‘will be maintained’

Quantitative easing might need to be sustained in order to maintain the economic recovery, an economist said today (November 24th).

Hetal Mehta at Oxford Economics pointed out that governments across the world should consider the financial implications of withdrawing stimulus measures "too quickly".

Since March, the Bank of England has purchased a combination of government and corporate bonds in a quantitative easing programme worth £200 billion so far.

It is hoped that this radical measure will increase the flow of money in the economy – encouraging banks to provide cheaper credit to borrowers and stimulating the property market.

However, the potentially inflationary effects of quantitative easing – which is effectively the modern-day equivalent of printing money – could also have severe knock-on effects on the value of cash savings, annuities and equity release plans.

Ms Mehta commented: "The key is not to pull the rug out of the recovery by withdrawing fiscal stimulus too quickly."

"The Bank of England has been a major buyer of government debt, so for them – a major buyer – to suddenly pull out of the market is going to be very difficult."

She added: "We don’t actually think the bank of England is going to be in a position to pull out the QE [quantitative easing] money until the government is in a position to start borrowing less."

The Consumer Prices Index, the government’s preferred inflation benchmark, rose from 1.1 to 1.5 per cent in October 2009, breaking seven months of consecutive rate falls.

Posted by Tom Papworth