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Top policymaker sounds warning over Bank of England's quantitative easing plan

Published 11/10/2016

The Bank of England is tasked with keeping inflation around the Government's 2% target
The Bank of England is tasked with keeping inflation around the Government's 2% target

The Bank of England's £435 billion quantitative easing plan to boost the economy could eventually become counter-productive, but has yet to reach that "tipping point", according to a top policymaker.

Michael Saunders - the Bank's most recently-appointed rate-setter on the Monetary Policy Committee (MPC) - told MPs on the Treasury Select Committee the downsides of quantitative easing (QE) could cancel out the support it provides to the economy.

His comments come after Prime Minister Theresa May took aim at the Bank's measures to shore up the economy since the financial crisis in a speech last week, saying QE and record low rates have had "bad side effects".

Mrs May said people with assets had got richer while those without had suffered and savers had been left poorer, adding that a shift instead towards government policy to drive growth was needed.

But Mr Saunders said in the Commons Committee hearing on his appointment that QE was not yet reducing the effectiveness of the Bank's monetary policy tools.

"I don't think we've reached that tipping point yet," he said.

In a written statement to the committee, he added: " Without QE, the chances are the UK would have had lower growth in recent years and higher unemployment now."

Mr Saunders - an economist at Citigroup who joined the MPC on a three-year term in August - also said the nine-strong rate-setting committee at the Bank would have to "look through" the higher inflation being caused by the plunging pound.

The Bank is tasked with keeping inflation around the Government's 2% target, but Mr Saunders said the pound's weakness could see inflation rise above 2% in the coming years.

On the economic hit from the Brexit vote, Mr Saunders said the economy will "do a little better over the next few quarters" than expected.

But he said this "doesn't tell you much about the long-run effects".

"It's important not to make judgements about the long-run on the basis of short-run data," he said.

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