The Bank said it wanted to dispel a few myths about QE, but while such a show of openness from an institution not always renowned for its communication skills is laudable, the top brass can’t have been surprised to see the get-together painted in some quarters as a panic measure.
Context, after all, is everything. If you don’t want people to think you’re worried, don’t invite them for a discussion about how your flagship policy is working just as you release a slew of statistics that suggests the answer is not very well.
Asked several months ago how people should judge whether QE was having the desired effect, Mervyn King chose a yardstick that those outside the City could be forgiven for regarding as a little esoteric. Look for an increase in the rate of expansion of the M4 measure of the money supply, the Governor told us.
Well, in July, M4 expanded by just 0.4 per cent. And yesterday the Bank revealed the rate of growth had fallen back to 0.2 per cent in August. On an annualised basis, M4 is expanding at just 3.9 per cent, which is way off what the Bank has been shooting for.
It is not just on the more esoteric measures that QE might be judged to be failing. If the aim of the scheme was to get banks lending again, yesterday’s data on consumer credit, home loans and advances to business all suggest that there is some way to go before that goal is met.
The slow progress of QE explains in part why Mr King and his colleagues on the Monetary Policy Committee voted for an expansion of the programme during the summer. The Bank also appears to be hedging its bets, hinting strongly that it is considering charging banks to hold money with it ? in effect a negative interest rate ? if QE doesn’t get more cash into the economy.
There are some reasons to be positive. Look at the remarkable recovery in the stock market over the past six months, for example. Let’s assume the consensus view that the UK economy will be declared out of recession when a third quarter growth figure is published next month is right. And you might also ask how much worse things might have been without QE.
Still, the Bank’s monetary policy response to the recession has been working in tandem with the fiscal stimulus package co-ordinated by the Treasury. The latter is not long for this world, given the pressures on the public finances, particularly if the Conservatives win next year’s election. QE has a great deal resting on it, which is why the mounting doubts are so unnerving.
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