Bank’s extra £50bn QE ‘can’t solve economic problems alone’

The Bank of England’s third round of quantitative easing (QE), worth £50 billion, is not sufficient on its own to kick-start the economy, experts have warned.

Yesterday’s announcement by the central bank takes the total QE level to £375 billion, but the monetary policy committee (MPC) decided to hold interest rates at 0.5 per cent.

PricewaterhouseCoopers economist Dr Esmond Birnie said: “The decision to restart QE is not unexpected, but it is unlikely to be effective by itself in supporting economic growth and indeed may even hold back a much needed fall in inflation.”

He said the MPC should concentrate on getting inflation back down to its target of two per cent.

Meanwhile, Saga director general Dr Ros Altmann accused QE of benefiting the banks and not the economy.

“With a double dip recession, falling bank lending, large numbers of unemployed and rising borrowing costs, we must questions whether QE has had the desired effect and in fact, through its impact on annuity rates and pension funds, whether QE may have actually damaged growth,” she said.

“We have been urging the Bank to hold off further QE until there had been a thorough assessment of its impact on our economy. We are deeply disappointed that it has ploughed on regardless.”

She added: “The Bank of England needs to stand back and examine whether this policy, which it has always admitted is just an ‘experiment’, is working.”

Retirement income specialists MGM Advantage also warned that annuity rates were likely to fall further following the decision to pump a further £50 billion into the economy via QE.

Andrew Tully, the group’s pensions technical director, said: “Annuity pricing is determined by a number of factors, including the yields available on UK gilts.

“This latest round of QE, hot on the heels of the £50 billion announced in February, will further impact gilt yields and will therefore drive down annuity prices. The current uncertainty in the Eurozone may also keep gilt yields low.”

But Ray Boulger of independent mortgage adviser John Charcol said it would have been a major surprise if the MPC had not voted to increase QE by at least £50 billion.

Referring to the base rate remaining at 0.5 per cent, he added: “Current indications are that the Bank rate will remain very low for an even longer extended period than expected only a month ago.

“It is partly as a result of this expectation that the cost of fixed rate mortgages has fallen.

“However, tracker rates have remained largely unchanged and as a result the premium one has to pay for interest rate security over a period as long as five years is now again low enough to make five year fixed rates an attractive option for many borrowers.”