Tom Becket, the director of investment strategy at PSigma, says the Bank of England monetary policy committee (MPC) must resist calls to increase quantitative easing (QE), claiming that the policy has largely failed in its objectives.
He says the use of QE is a “dangerous financial experiment” initially conducted by the same people who were unable to spot the dangers that led to the QE crisis.
“What the economy needs is confidence and time rather than ill-thought out hyperactivity”
Stuart Thompson, the chief executive of Ignis Asset Management, has called for an increase in QE to offset the fiscal tightening in the government’s comprehensive spending review.
But Becket says: “To simply decide to travel further down the same road, with the ultimate destination unknown, seems to be entirely pointless at this juncture. What the economy needs is confidence and time rather than ill-thought out hyperactivity that creates confusion and causes concern.” (article continues below)
Becket says QE has achieved little globally, given that international bond yields and mortgage rates in America both remain low. He says that QE may boost asset prices but at the expense of inflation in the future while it is also unlikely to ensure the banks continue to lend.
He says: “QE was put in place to boost the money supply, which has not worked and there is sufficient evidence to suggest it has failed miserably. The spectre of QE has driven prices up powerfully, as bad news in the economy is seen as good news and investors speculate that the central banks will be forced to act and print money. This could carry on and even intensify in the weeks ahead, especially as the pain trade of not owning enough risk exposure in a rising market grips investors.”
John Redwood, the Conservative MP for Wokingham, has also warned against further quantitative easing. He says: “The £200 billion of the last government’s programme is still in the system. It has caused some inflation by helping drive the pound down against other currencies.”