The policy of quantitative easing (QE), wherein the Bank of England has been printing money and giving it to the banks in order to stimulate lending, has begun to receive criticism from within the Bank itself. There were already analysts in the city and commentators throughout society that had claimed it was not doing what it was supposed to, but now Paul Tucker, a policy maker at the Bank, seems to be in agreement.
Many people point to the fact that lending simply has not increased, despite the £375billion that has been funnelled to the banks. The Bank maintain that the situation would have been a lot worse without it and that even fewer people would have received the loans they need, but this latest announcement from Mr Tucker could indicate a change of direction, as he is one of the people being considered as a replacement for the Bank’s current governor, Sir Mervyn King.
He made sure he still supported the Bank’s actions, saying “we still think QE works, even if in some respects it does not have the same bite it used to have,” but he was also keen to stress the importance of other avenues, such as the recently initiated Funding for Lending campaign: “I think Funding for Lending can help. I was very keen that it be introduced.”
Of course, some people make the point that these schemes will simply have no effect whilst demand for loans remains low, but Mr Tucker has addressed this as well, pointing out that the Bank can’t solve that problem, but can make loans available where there is demand: “People rightly point out that there may be weak demand for credit. Of course that’s an element. But the Bank should do what we can to alleviate problems in credit supply, consistent with staying within our remit as a central bank.”
Whilst he admits that QE could continue, he also says he is keen to pursue other strategies. These announcements from potential future governors are all worth paying attention to, as they could indicate the direction that our economy will be taken.