“It used to be the case,” reminisced Today presenter Evan Davis this morning, “that each month the Bank of England’s Monetary Policy Committee (MPC) would meet and set interest rates. We would wait with baited breath at noon to see whether rates went up or down by a quarter point.
“That all seems so long ago,” he continued, a distinct pang of regret now tingeing his voice. “When the MPC meets today, no one expects it to change the half-percent interest bank rate: instead, all eyes will focus on its money-printing operations – quantitative easing.”
Davis was correct: the MPC didn’t announce a change to interest rates, but what was more surprising was that the committee decided to delay an announcement about whether it will increase its level of quantitative easing from its current level of £125bn to £150bn until its August meeting.
There has been constant debate over the effectiveness of quantitative easing since it was announced by chancellor Alistair Darling back in March. Designed to ease the pressure on the economy, it’s effectively a complicated method of printing money whereby the Bank of England ‘extends its overdraft with itself’, as Davis put it; freeing up capital to buy government bonds – ‘which means the economy has fewer government bonds floating around, and more Bank of England cash’.
It’s another strategy the government has put into place to encourage banks to lend, but experts say the reason a decision has been put off is because there’s little evidence it’s actually working. HSBC’s head of global markets Bronwyn Curtis told the BBC there was confusion among the MPC’s members. “I don’t think they know yet whether it’s working,” she said.
Although evidence is limited, a report out last week indicated May had seen a slowdown in the drop in lending. While April saw a fall in lending of 0.9%, May’s lending dropped by just 0.1% - bad, but less bad.
While this seems a natural time for the MPC to pause and consider its decision, it's frustrating the Bank is so slow in reaching a conclusion when so many businesses are struggling to keep their heads above water.
So will the Bank put more cash into the economy or do away with quantitative easing altogether? It’s not a ‘done deal’, pointed out BBC economics editor Stephanie Flanders – so it looks as though we’ll just have to wait and see.