Quantitative easing is working, says the Bank of England’s Deputy Governor

By Rachel Reeves

Charlie Bean, Deputy Governor at the Bank of England was in Leeds at lunchtime today talking about the impact of quantitative easing. Not everyone’s idea of a lunch-break, I expect, but I was very impressed.

It’s now just over four months since the Government gave the Bank permission to start pursuing Quantitative Easing, which has already pumped £112bn in to the UK economy.

So, is it working? Charlie says yes.

It has helped push down the yield (interest rate) on Government and corporate bonds, so making the cost of raising money cheaper. It has increased cashflow in the economy, so going beyond just impacting the bond markets, and Charlie thinks it is beginning to have an impact on the credit conditions that businesses face – which have improved in the last few months.

But, as Charlie noted, actions taken by the Bank of England should not be looked at in isolation. They are part of a Government strategy to make sure this recession is as short and shallow as possible. As well as record low interest rates and QE, the Government has guaranteed bank lending, re-capitalised the banks, and used fiscal policy to support the economy.

And, unlike Bank of England governor, Charlie welcomed the budget deficits. It ‘makes sense’ to run the deficits we’re doing, Charlie said. Of course, they can’t be maintained in the long run, and that’s why Alistair Darling’s budget explains how the budget returns to balance. But right now they are helping to ensure that families and businesses are not left to fail because of the global recession. That should be welcomed, and it certainly is in places like Leeds West, where often families already struggle to make ends meet.

Charlie ended by saying that the decision on how to close the budget deficit was a political one. Either higher taxes or lower spending could be used, but that is a decision for the electorate. Well said Charlie. There will be a clear choice at the next election – tax generosity for the few with a cut in inheritance tax for the 3,000 richest families combined with deep cuts in public services, including schools and police, from the Tories, or necessary tax increases – like the 50% rate for top earners and a commitment to continue investing in public services for local people from Labour.

The recession is not over, but measures taken by the Government are beginning to bear fruit. Let’s not risk undoing that good work by putting Osborne at the helm of the Treasury.

Rachel Reeves is Labour’s Parliamentary candidate for Leeds West. Read Rachel’s PPC Profile.