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QE failing to make necessary impact

November 30, 2009 by admin  
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Following the recent announcement that a larger amount of money is to be ploughed into the economy through the programme a number of industry groups and officials have come forward to claim that the government is simply throwing good money after bad because the scheme is clearly not working.

The announcement that the scheme was to be extended by a further £25 billion was made earlier this month following the meeting, where it was also announced that the base interest rate would be kept on hold at 0.5 percent.

One investment industry professional said: ‘It is all very well extending the programme, but the cash has to get into the broader economy, and it isn’t.’ he also said: ‘It is like filling a car with more and more petrol when the engine is broken.’ An economist added: ‘If you keep doing the wrong thing, doing more of it doesn’t make it any better. The Bank seems to believe quantitative easing is having a positive impact. We are far less convinced.’

One investment worker said that the central bank was now starting to take risks with the QE scheme, stating: ‘They are starting to take risks. I don’t think the recent data really suggested further stimulus was required.’

It is claimed by critics of the scheme that one of the reasons that the scheme is not actually having any positive impact on the economy was because the banks were simply sitting on the money that was being generated through quantitative easing.

In a recent summary about the state of the economy the National Institute of Social and Economic Research stated: ‘Our monthly estimates of GDP suggest that output fell by 0.4% in the three months ending in October, following on from a similar decline in the three months ending in September. The buoyancy of industrial production in September is good news, but a rise between May and July petered out with renewed weakness in August. The profile of the economy suggests that the current depression is probably slightly worse than the experience of the early 1980s but not as bad as that of the early 1930s.’

Tags: quantitative easing, economics, gdp, quantitative easing programme, estimates, economist, Monetary Policy Committee

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