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Blow for Darling as IMF warns £175bn injection is ‘not enough’
Paul Waugh, Deputy Political Editor12.08.09
The Bank of England's £175 billion quantitative easing scheme may not be boosting the economy, the IMF has warned.
In an embarrassing blow to Bank Governor Mervyn King and Chancellor Alistair Darling, the fund said it was still unclear whether the massive intervention in financial markets was producing results.
The Bank has used the vast majority of the £175 billion to buy government bonds, known as gilts, in an unprecedented way in a bid to prevent deflation. Mr King last week increased the programme by a further £50 billion to £175 billion. Now a study by the IMF has found that the UK's is the biggest intervention by any western central bank.
Mr Darling is borrowing more than £220 billion this year by issuing gilts to meet the cost of collapsing tax revenues and rising benefits payments.
The Bank, in turn, is buying government bonds back, using money created electronically by simply crediting the accounts of banks, insurers or pension funds. The paper by André Meier, a senior IMF economist, noted: “It remains too early to tell whether [this] will be enough to ultimately generate the desired increase in aggregate demand”.
The Bank also argues it is too early to judge the policy, since it may take until at least December for the full effects to become clear.
Stewart Robertson, Senior UK and Europe Economist for Aviva Investors, said: “Many have declared quantitative easing a failure . . . but it will take time to have its full impact.”
Bronwyn Curtis, head of research at HSBC, said the markets had been unsettled by the Bank's “bizarre” decision to halt the programme and suddenly restart it.
Reader views (4)
What was it that Harold Wilson said all those years ago about devaluing the pound? That one about the pound in your pocket not changing in value, or words to that effect? I wonder what the real devaluation of the pound in your pocket is after £175 billion of cash being injected into the system out of thin air?
"Quantitative easing" is a lie for the gullible, nothing more. It isn't more money, just more bank notes in a ravished and devalued currency.
- Rogan, Irving
Just exactly what has this shambolic Government and clown of a Chancellor have to do before you people do something about it ? Do the British people not care anymore ? This pathetic Government should have been thrown out months ago but they seem to just carry on regardless. The true cost of the worst and most reckless Government will only come to light when the new party takes over. Brown is a master of keeping debt off the books and this will soon be shown to be immense!
- Duncan Walker, Ex Peckham nowThailand
I love the way printing money is called "Quantitative Easing" Printing money to raise more never works, just look at Germany after WW1 or Zimbabwe now.
What gets me is that the media seem to be ignoring this particular piece of madness.
- Steve, London
This lousy Labour government and wombles like Dizzy Darling have already printed GBP175,000,000,000.00 of money they do not have and it has vanished into thin air.
Try looking in the pockets of greedy bankers and money-grabbing MP's - that is where the vast majority of this GBP175,000,000,000.00 will have finished up.
Joe Public can just go without - obviously.
- Reuben Camara, Republic of Morecambe, UK
