Quantitative easing: too much of a good thing
The Bank of England is addicted to quantitative easing (QE), the House of Lords has warned. What does that mean for investors?


When the developed world’s central banks resorted to quantitative easing (QE) after the 2008 global financial crisis, most of us were shocked. While QE was not entirely new, the idea of central banks printing money at scale to buy government bonds seemed an extraordinarily radical, not to mention risky step. Today, it’s just another part of the toolbox. QE has been used in various forms across most developed nations in the decade since the banking crisis, so when it was deployed in vast quantities during the pandemic, no one batted an eyelid. But a new report from the House of Lords’ Economic Affairs Committee suggests that this widespread complacency is a problem. In short, QE has become “a dangerous addiction”, to quote the report’s title, with a particular focus on its use during the pandemic.
The big problems with QE
So why the concern? Mervyn King – who headed the Bank of England when QE was used in 2009 – sums up the report’s main findings for Bloomberg. First, central banks risk appearing too relaxed about inflation. They say that price rises are “transitory”, but it’s not clear why this is the case, or what they would do if inflation turns out not to be transitory (eg, raise rates, or drain the QE first?). Second, QE is too readily used – it “has become a universal remedy for almost any macroeconomic setback”. The 2020 pandemic was very different in nature to the banking crisis – yet central banks reached for the same solution.
Third, given the scale of recent QE and the simultaneous increase in government spending, central banks risk compromising their independence and credibility as they come under pressure from governments to keep funding national budget deficits. Finally, central banks have no clear strategy on how to unwind QE, or even if it can be unwound. Already the assets bought by the Bank of England under QE are worth 40% of UK GDP, so this question is hardly just theoretical. The report also nods to QE’s impact on wealth inequality. It “artificially” boosts asset prices, benefiting their owners “disproportionately”. It is also sceptical about the usefulness of extending central bank mandates to include climate change.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
It’s all pretty damning, implying that central banks don’t really know what they’re doing. It’s also clear that the committee feels that QE now risks fuelling inflation. But what does it mean for investors? Probably nothing. None of these points is new (we’ve been making them for years). It might put more political pressure on the Bank of England to make a show of attending more to inflation. But as the report itself rather proves, central banks (and governments) have become dependent on QE. In the absence of a palatable alternative, it’s hard to see them going cold turkey.
Sign up for MoneyWeek's newsletters
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
John Stepek is a senior reporter at Bloomberg News and a former editor of MoneyWeek magazine. He graduated from Strathclyde University with a degree in psychology in 1996 and has always been fascinated by the gap between the way the market works in theory and the way it works in practice, and by how our deep-rooted instincts work against our best interests as investors.
He started out in journalism by writing articles about the specific business challenges facing family firms. In 2003, he took a job on the finance desk of Teletext, where he spent two years covering the markets and breaking financial news.
His work has been published in Families in Business, Shares magazine, Spear's Magazine, The Sunday Times, and The Spectator among others. He has also appeared as an expert commentator on BBC Radio 4's Today programme, BBC Radio Scotland, Newsnight, Daily Politics and Bloomberg. His first book, on contrarian investing, The Sceptical Investor, was released in March 2019. You can follow John on Twitter at @john_stepek.
-
Barclays begins paying up to £100 compensation to customers after banking outage
Barclays will pay up to £7.5 million in compensation to customers after its banking services were disrupted by an IT outage
By Daniel Hilton Published
-
Review: Shangri-La Paris – an ode to the world’s best food
Natasha Langan enjoys fine French and Chinese cuisine at the Shangri-La Paris
By Natasha Langan Published
-
A new wealth tax is a terrible idea. The rich are already being hit by sneaky taxes – Merryn Somerset Webb
Opinion Ideologues want to squeeze more tax out of the rich with a wealth tax. They’re already wrung dry, says Merryn Somerset Webb
By Merryn Somerset Webb Published
-
Why are energy bills so expensive in the UK?
Electricity bills in the UK are higher than in any comparable rich country. Some blame the net-zero zealotry of the government for that. What is really to blame for high energy bills?
By Simon Wilson Published
-
Five years on: what did Covid cost us?
We’re still counting the costs of the global coronavirus pandemic – and governments’ responses. What did we learn?
By Simon Wilson Published
-
London can lure Brexit-fleeing banks back to UK – but the City must move quickly
Opinion Many banks fled to Paris in the wake of Brexit but are now in full-scale retreat. The City should move quickly to lure them back, says Matthew Lynn
By Matthew Lynn Published
-
Spring Statement: Rachel Reeves 'must turn good intentions into effective measures'
Opinion Chancellor Rachel Reeves understands the economy’s structural problems but is unlikely to solve them, says Max King
By Max King Published
-
England's department stores return – but do they have a future?
Opinion The great traditional retail shops of Middle England have bounced back for now. Don’t get too carried away though, says Matthew Lynn
By Matthew Lynn Published
-
Labour's 'Project Chainsaw' begins by abolishing NHS England – will it backfire?
Keir Starmer is taking the fight to the blockers, the NIMBYs, public sector workers and the unions says Emily Hohler. What happens if Labour fails to deliver?
By Emily Hohler Published
-
Live: Bank of England holds UK interest rates at 4.5%
The Bank of England voted to hold UK interest rates at their current level of 4.5% in March, as widely anticipated, after inflation rose to 3% in January
By Katie Williams Last updated