Andrew Bailey: Quantitative easing has not hit limits

Bank of England governor Andrew Bailey said that quantitative easing has not reached its limits, but that he would like to reduce the stimulus to give the bank more tools if there is another economic hit.

The Bank pumped billions of pounds into buying bonds during the Covid-19 crisis.

The practice, known as quantitative easing, is likened to printing money as the Bank creates new electronic money to buy the bonds. It is designed to encourage spending and investment.

“I would not wish to suggest that we’ve hit the limits of QE (quantitative easing), we keep that under careful review, but there is no natural limits,” Mr Bailey said.

The tool was used heavily during the 2009 financial crisis. However, the Bank was never able to reduce quantitative easing between then and the Covid-19 crisis, meaning that the easing during the pandemic merely added to what had been put in place during the financial crisis.

“Whereas the US Federal Reserve did do some exit between the financial crisis and the Covid crisis, the Bank did not find itself able to do that,” Mr Bailey told the House of Lords Economic Affairs Committee.

He said that the UK and the rest of the world has faced low interest rates for several years, and that this is likely to continue for some time to come.

In such an environment, quantitative easing gives central banks another string to their bow should something else happen in the economy.

“Given that QE (quantitative easing) is the other tool, I hope that we can get to the point where we can operate QE if we need to, if we get another shock … we will have been able to adjust the Bank of England balance sheet countercyclically and that we can unwind to some degree with QE,” he said.

The governor said he was in no position to promise that would be possible. He added that the bank still has the ability to do more quantitative easing.