Banks decides to look at quantitative easing to assist economy
Over the past six months the nation has seen the UK’s base interest rate drop dramatically from 5 percent in October of last year to just 0.5 percent by March of this year. This came after a series of six interest rate cuts from the Bank of England in as many months, taking the base rate to its lowest level in the three hundred and fifteen year history of the Bank of England.
Whilst the base rate cuts may have been welcomed by many people, such as borrowers and homeowners with variable rate mortgages, many other groups and people were not so happy with the cuts, such as industry groups who claimed that the rate cuts were not helping to increase access to finance and savers who saw the returns on their hard earned cash go through the floor.
Following the latest Monetary Policy Committee meeting earlier this month the Bank of England announced that the base rate was to remain on hold at 0.5 percent. The move was not unexpected, as most industry officials and economist had already predicted that the central bank would now start looking at other ways in which to try and ease the economic crisis, having already cut the base rate to rock bottom levels.
Industry experts have now said that central bank and government are looking towards quantitative easing to try and boost the economy, and interest rate cuts will be put on the back burner for some time. In fact, many have predicted that the base rate will now remain the same for the duration of this year and into next year. Instead, the government hopes to plough up to £150 billion into the economy through the purchase of government and corporate bonds, known as quantitative easing, which it hopes will increase lending by banks and financial institutions, and will help to get the economy back on its feet.
The government has already ploughed billions into the economy through quantative easing, although there is no real data relating to how successful this has been. One economist said: ‘While it looks like (the first quarter of 2009) may well be the worst quarter of this downturn, any talk of recovery is premature. The Bank of England has emptied both its barrels, and it will be some months before we can judge just how successful it has been.’
Another economist said: ‘QE is clearly now at the forefront of the Bank of England’s attempts to stimulate economic recovery, not only because Bank rate has fallen as low as it can effectively go, but also because the lack of availability of credit is a serious threat to recovery prospects.’
It has also recently been revealed that there has been a shock just in CPI, or Consumer Price Inflation, and a member of the Monetary Policy Committee, Spencer Dale, recently warned that this could mean that interest rates will, at some point, rise again sharply in order to keep inflation under control. He said: ‘The committee adjusted monetary policy boldly and decisively on the way down in order to meet the inflation target. And, let me assure you that, when the time comes, we will be prepared to respond with equal vigour on the way back up.’
Tags: series, industry, level, Mortgages, access, Central bank, interest rates, bank of england
