The Treasury Select Committee has heard earlier today from two former external members of the Bank of England’s Monetary Policy Committee, Dr Andrew Sentance CBE and Kate Barker CBE, as part of our inquiry into the Bank’s use of emergency monetary policy to continue quantitative easing.
QE has undoubtedly had a significant impact as a response to the financial crisis, and was an innovative solution to an unprecedented economic problem. We have been considering what role QE can play going forward and how to handle its unwinding, given that the incoming Governor of the Bank of England will have to give serious thought to them.
I welcomed the comments from Dr Sentance that there is a substantial difference between QE as an emergency response to a very difficult situation as in 2009 and early 2010, where it may have had an impact on turning round the tide of confidence in financial markets, and QE as a routine tool of monetary policy as applied by the MPC in 2011 and 2012.
My focus was very much on the impact of continued QE on people’s lives, and whether savers have been penalised whilst borrowers have been helped. Dr Ros Altmann had previously told the TSC that QE had had a suppressing effect on consumption in the UK, particularly amongst the over-50s who have paid off their mortgages and have cash to spend, but because of the threatened impact on their annuity rates are saving rather than spending. So whilst I note that Ms Barker had said she thought the effects of QE on the economy as a whole had been positive, I am glad that she recognised there have been negative effects on savers.
I also spoke on the issue of accountability, given that the Bank of England now has substantially expanded responsibility but limited added accountability beyond the letter exchanges between the MPC and the Chancellor. I welcomed the recognition from Ms Barker that monetary policy should have been substantially tighter before the financial crisis, and the acknowledgement from Dr Sentance that the accountability mechanisms could have been more robust.
You can review the transcript from the TSC evidence session here, and my contributions are on pages 23 to 28. You can also watch my exchange with Ms Barker and Dr Sentance below.