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MP warns Bank's quantitative easing could lead to worse crisis than 2008

Published 16/09/2016

Bank of England
Bank of England

The Bank of England's quantitative easing programme has been criticised by MPs, who suggested it has only made the rich richer - and could lead to an even worse financial crisis.

Tory MP Steve Baker said such "easy monetary policy" was madness, and could lead to a "horrific" economic correction if central banks abandoned quantitative easing.

And Labour's Helen Goodman, who sits on the Treasury Committee, said the measures had boosted the wealth of Britain's top 5% by nearly £200,000 - with no boost to the poorest in society.

Their comments came as MPs debated calls from the SNP for more thorough analysis of the impact of quantitative easing.

The radical move, which introduces new money into the money supply through a central bank, was done in the wake of the 2008 financial crisis.

A fresh round of quantitative easing was also announced after Britain voted to leave the European Union.

Mr Baker, who also sits on the Treasury Committee, said these policies had inevitably led to huge inflation of assets like housing.

He said the Bank of England had insisted it could control these measures through other economic means.

But Mr Baker called this "one of the big questions of our time", and was unconvinced by the bank's stance.

He added: "I am absolutely convinced that they cannot be dealt with, and that therefore we will have a worse crisis later than the one in 2008.

"This, it seems to me, has gone from an exercise in saving the financial system, to an exercise in kicking the can down the road."

He predicted that banks would soon start charging negative interest rates, and there had already been talk of banning cash.

He added: "It is encouraging a misguided belief that if only we printed money and gave it to everybody, there would be justice.

"This kind of naive inflationism is madness. We have got to get to a point where we escape from easy monetary policy."

He forecast three outcomes of quantitative easing - a self-sustaining recovery, as hoped for by the central banks, massive ongoing inflation, or an abandonment of these policies and a "horrific" correction on assets.

Ms Goodman told MPs that she was not critical of quantitative easing in principle, and could support it in the wake of economic shocks such as Brexit.

But Ms Goodman quoted Bank of England analysis of quantitative easing in 2012 as showing the disparity of its effects between rich and poor.

She said: "I think that what they found was the top 5% had seen an increase in their wealth of £185,000, and that the bottom 50% got no increase in their wealth, because they didn't have assets.

"What we're saying, in practice, is the top 5% have been given enough money by the Bank of England to buy another house.

"I'm not happy that the bank have demonstrated that the way they're doing quantitative easing is the best way."

She added that the European Central Bank's quantitative easing programme invested in housing and infrastructure.

Ms Goodman instead suggested that the Bank of England could invest in housing associations, as an alternative form of quantitative easing.

Mr Baker, in response, said the Bank of England argued that the financial crisis would have been worse without quantitative easing - an argument he said was wearing thin.

The SNP's Ian Blackford (Ross, Skye and Lochaber), opening the debate, called on the Bank of England to assess how effective its quantitative easing programmes has been given June's vote in favour of Brexit.

He said: "The SNP understood the use of quantitative easing by the Bank of England as a response to the financial crash and as a temporary measure to regain stability.

"However, the effectiveness of monetary policy has been gravely undermined by the austerity agenda and leaves a legacy of unintended consequences that puts an unprecedented burden on future generations.

"The Bank of England should now evaluate the effectiveness of its QE programme and the wider consequences of its continuation after the UK's decision to leave the EU.

"The UK Government should reflect on that and put in place effective fiscal measures."

Peter Dowd, who spoke from the frontbench for Labour, said: "We would welcome any further study to be conducted by the Government or others into the effectiveness of unconventional monetary policy."

Treasury Minister Simon Kirby said responsibility for the setting of monetary policy rested with the Bank of England's Monetary Policy Committee (MPC).

He said: "The independent MPC of the Bank of England has a hugely important role in these difficult times to play in maintaining monetary stability in this country.

"They have taken a range of steps to achieve this objective and will be closely monitoring the impact of this action."

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