The Bank of England has expanded its quantitative easing (QE) programme in response to the second English lockdown. The Monetary Policy Committee (MPC) voted last week to buy £150bn more government bonds with printed money, taking the total value of its quantitative easing programme to £895bn, about 40% of 2019 UK GDP. The Bank also forecast that it will be early 2022 before the UK economy returns to its pre-pandemic level.
The Bank’s new bout of bond-buying comes as government borrowing spirals ever higher, says Liam Halligan in The Daily Telegraph. Since March, the Bank has printed “more than three times what we spend on the NHS in an entire year”. Soon it will “own almost half the entire store of UK public debt”. The “historic precedents” for such rampant money-printing are hardly comforting. That such a “dangerous and controversial economic policy” has been undertaken with scarcely any public debate is “utterly mad”.
For now, however, yet more liquidity bodes well for British equities – which have not been this cheap compared to their global counterparts since 1973, as Stefan Wagstyl points out in the Financial Times. There are good reasons for the steep UK discount: the FTSE has a glaring “shortage of tech stocks”. Thanks to Covid our economic performance looks likely to be “among the weaker developed economies” over the next two years, which will hit company profits. Foreign businesses “don’t have to contend with Brexit” uncertainty either. Yet from AstraZeneca to Diageo the UK market boasts savvy global operators. Some of the top blue-chips earn up to 70% of their profit overseas. Things are bad now, says Wagstyl, but are they really as bad as 1973 when “strikes... and power cuts” left me “to do my homework by candlelight”?
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