Latest news with #QE
Telegraph
25-07-2025
- Business
- Telegraph
Money-printing has impoverished Britain and no one is accountable
Quantitative easing (QE) entered the lexicon in 2009 when, for reasons which remain obscure to this day, the world's Western central banks decided to push not only short-term rates, but also long-term interest rates to near-zero. It was a coordinated monetary response to the very severe 2008-9 global financial crisis. The Bank of England was an enthusiastic partner in this enterprise, singing the praises of the policy at the time. It argued it would pump money into the economy and hence stimulate economic activity in the post-credit crunch period when economic and investment confidence was low. How did QE work? Announced in March 2009, the Bank of England started buying long-dated bonds (mostly government bonds or gilts) to push down interest rates (by pushing up the price of the bonds). The Bank of England had already reduced the Bank Rate from 5.5pc at the start of 2008 to 0.5pc in March 2009. For most people, this was hard to understand, since it meant that governments issued debt which their central banks (guaranteed by the state) bought using money borrowed from commercial banks by way of a central bank 'overdraft'. The growing central bank overdraft was dressed up, presumably to reassure the public, as 'creating central bank reserves' – which sounds a lot better. If you're not confused already, then you're doing well. To summarise: QE involved rigging the government bond market so that interest rates were ultra-low, nearly zero, across the board, and in most of the developed Western economies. How did it work out for us in the UK? Well of course, this wasn't an experiment with a control, so we can't know definitively. But let's look at some sample figures – and start with economic growth. According to the Office for National Statistics (ONS), between 1958 and 2008, UK real growth per capita averaged 2.2pc per year. QE started in early 2009, so measuring from then, the real growth rate between 2009 and the end of QE in 2022 was about a quarter of the previous growth, at 0.6pc a year. Now there were lots of mitigating factors – such as the 2020-21 Covid crisis – but if we stop counting in 2019, to avoid the Covid years, growth between 2009 and 2019 was only 0.7pc a year. So we can't really blame Covid. So, the answer to the basic question, did QE promote growth?, is no. What about government prudence? In my opinion, by far the most important aspect of QE was that it lasted so long, and became so embedded in our collective psyche, politicians around the world began to believe that borrowing money was free. For more than a decade, it certainly looked like that. Investors sat quietly buying very, very expensive government bonds to finance widening fiscal deficits. Many of these investors, particularly pension funds, were effectively forced to do so to satisfy pension regulators' demands for what is known as 'asset-liability matching', for which long-dated government bonds, particularly index-linked bonds, were a near perfect liability match. The global financial crisis, which had revealed very 'unmatched' portfolios, encouraged governments to strengthen the rules about asset-liability matching, hence the willing investors buying gilts at any price. In any case, gilts performed very well in the period between 2010 and 2021: as interest rates continually fell, their prices continually rose. Businesses that normally would have gone bankrupt didn't because they could finance or refinance their debt at almost zero cost. There was even an academic movement called Modern Monetary Theory, which argued that borrowing money was, in effect, free, so governments could loosen their purse strings without constraint. As a result of this perception that borrowing was very cheap or 'free', the Government borrowed like it has never borrowed before. According to the ONS, the total financial liabilities of the public sector rose from £1.4tn at the end of 2009 to £3.4tn at the end of 2021 – a more-than-doubling of overall government debt in just over a decade. And this in a period of suppressed inflation. What's more, this figure does not include the unfunded public sector pension liability, which at the end of March 2022 stood at another £2.6tn. You might wonder why the Government doesn't recognise the public sector pension liabilities in its main accounts, but this is a separate topic for discussion. A very important secondary effect of QE was that real assets – those that produced returns for investors – rose in value very substantially. House prices, shares and commercial property were all buoyed by the fact that they yielded much higher income than the interest payable on the borrowing to buy them. It was a simple income arbitrage – borrow money very cheaply, and invest in anything that yielded a higher return. In the UK, buy-to-let residential property exploded as an investment activity. This shouldn't have been surprising: a saver could borrow money with a mortgage at 2pc or less, and invest in property that yielded 5pc or more. Property prices themselves were strong, so both income and capital gains seemed attractive. It is also worth mentioning that individual savers, a much-ignored and abused section of the UK economy, were horribly treated during the whole QE period. Interest rates (particularly after tax) failed by a long way to keep up with (even modest) inflation, so saving became a way to lose money – and borrowing became a way to make money. These observations turned into habits and ways of thinking for people – instilling exactly the opposite of good financial instincts into the general population. Finally, on the direct effects of QE, let's look at the effect on the Bank of England. The Bank was used by the Government as its agent – some might say poodle – to buy the Government's own debt with money the Bank borrowed from the private banking system. The Government indemnified the Bank against any losses that it might incur in this hedge fund-like market activity. That indemnity was necessary, as it turned out, as at the end of QE the gilts the Bank owned turned out to be worth several hundred billion pounds less than the overdraft used to fund their purchase. The effect was for the Government to borrow about £800bn of very short-term money on overdraft with a variable interest rate, instead of long-term, low-interest issues of gilts. So when interest rates went up, as they were ultimately always going to do, the taxpayer had much less cheap borrowing secured. We are now paying dearly for something the public didn't understand and wasn't consulted on, and now appears to be utterly pointless. Let's summarise. QE was designed to 'pump money into the economy' to stimulate investment and economic activity. From the growth figures, it appeared to do the opposite (although there are many other factors in play). No mention was made of the possible downsides, and these now appear to be legion and severe. They include: Extreme laxity in public sector finances; a disregard for the long-term effects of public sector indebtedness; much higher valuations of real assets (largely residential property); a stealth tax on savers; a central bank with a weakened reputation and a bloated negative balance sheet guaranteed by the Government. Has anyone who served in government been criticised for this decision? Has anyone lost their job? Does anyone even know who made the decision? Do we know the identities of the economic advisers who suggested and promoted this idea? Have we as a nation thought about the consequences so we can learn lessons for the future? The answer to all these questions is 'no'.
RTHK
24-06-2025
- General
- RTHK
Norman Foster wins QE memorial design contest
Norman Foster wins QE memorial design contest The memorial will include statues of the queen on horseback and with her late husband. Photo courtesy of UK government Renowned UK architect Norman Foster has won a competition to design Britain's national memorial to the late Queen Elizabeth II. Famed for designs that have fused technology and nature and transformed modern cityscapes, Foster, 90, said the opportunity was an "honour and a privilege". The memorial will include a statue of the queen, a keen horsewoman, on horseback and another of her arm in arm with her late husband Prince Philip. Elizabeth, Britain's longest serving monarch, died in September 2022 aged 96 after more than 70 years on the throne. She was succeeded by her eldest son, who became King Charles III. The memorial in St James's Park next to Buckingham Palace will also include a glass bridge inspired by the queen's wedding tiara. "At the heart of our masterplan is a translucent bridge symbolic of her majesty as a unifying force, bringing together nations, countries, the Commonwealth, charities and the armed forces," Foster said in a statement. Foster has been shaping urban landscapes since the 1960s and won the Pritzker Prize, the equivalent of the Nobel Prize in architecture, in 1999. His statement projects include Apple's giant ring-shaped headquarters in California, London's Wembley Stadium and Millennium Bridge, and Berlin's Reichstag. The final plans for the memorial will be unveiled next year. (AFP)
Yahoo
11-06-2025
- Business
- Yahoo
Reform plans risk destabilising markets, warns Bank of England
Reform's plan to overhaul the Bank of England will leave markets more exposed to financial shocks, a senior official at the central bank has Saporta, a director at the Bank, signalled that the party's scheme to stop the Bank paying interest on money held there by commercial banks could return Britain to a world of 'significant' volatility in financial markets. It comes amid increasing scrutiny of Reform's economic plans as the party surges in popularity. Panmure Liberum recently warned of an 'immediate and violent' sterling crisis if Nigel Farage came to power and followed through on his plans to slash taxes. Reform has refuted this claim, saying it would focus on cutting spending first to ensure any tax cuts were affordable. The party has vowed to save taxpayers up to £35bn a year by scrapping interest payments on central bank reserves, which were created as part of the Bank's £895bn quantitative easing (QE) programme to boost the economy during the financial crisis and Covid lockdowns. Richard Tice, the party's deputy leader, sent a letter last week to Andrew Bailey, the Governor of the Bank of England, accusing Threadneedle Street of prioritising corporate profits over the interests of working people. He claimed the Bank was engaging in a 'systemic misuse of taxpayers' money' by paying interest and selling its existing stockpile of government bonds at substantial Street did not start paying interest on reserves until Ms Saporta did not reference Reform's plan directly in her comments, she warned that the pre-2006 system 'actively disincentivised banks from holding any more reserves than was strictly necessary' because they were not remunerated. She added: 'This complex, scarce-reserves framework came at the cost of significant overnight rate volatility.' Ms Saporta added that paying interest on money parked at the Bank underpinned its ability to influence the economy by controlling borrowing costs. Mr Bailey has previously said that stopping interest payments on reserves would undermine this power. The Governor has repeatedly spoken out against changing the way commercial lenders are compensated for parking their cash at the Bank, warning that it could undermine financial and monetary stability if lenders no longer wished to hold extra buffers. Ms Saporta said: 'By remunerating reserves at Bank Rate, we anchored short-term market rates to the Monetary Policy Committee's chosen policy rate – a core feature of the framework that remains in place today. 'Put simply, we implement monetary policy through the interest we pay on reserves, and this has delivered a significant improvement in our ability to steer market rates.' Responding to Ms Saporta's comments, Mr Tice said: 'This speech is designed to confuse people with technical detail. It avoids the basic principle that the system worked fine [pre-crisis], before QE, and ignores the fact that some other central banks are neither paying interest on QE reserves nor doing quantitative tightening.' Quantitative tightening is the term for winding down the significant holdings of bonds built up by the bank throughout successive crises. Critics, including Mr Tice, believe offloading bonds is detrimental to the UK as it is crystallising losses for the taxpayer and pushes up borrowing costs. The Bank is selling down its stockpile of bonds at heavy losses to the taxpayer. The Office for Budget Responsibility (OBR), the Government's tax and spending watchdog, expects the cumulative lifetime loss to total £133.7bn, which is bigger than the annual education budget and more than twice what the UK spends on defence. Ms Saporta signalled that it will keep running down its stockpile of government bonds. She said the Bank will continue to move to a more normalised system of providing cash on demand through what's known as repurchase or 'repo' operations. This suggests it will continue to reduce its balance sheet through quantitative tightening in order to help the 'system's flexibility to rapidly scale up reserves supply'. Broaden your horizons with award-winning British journalism. Try The Telegraph free for 1 month with unlimited access to our award-winning website, exclusive app, money-saving offers and more. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
11-06-2025
- Business
- Yahoo
Reform plans risk destabilising markets, warns Bank of England
Reform's plan to overhaul the Bank of England will leave markets more exposed to financial shocks, a senior official at the central bank has Saporta, a director at the Bank, signalled that the party's scheme to stop the Bank paying interest on money held there by commercial banks could return Britain to a world of 'significant' volatility in financial markets. It comes amid increasing scrutiny of Reform's economic plans as the party surges in popularity. Panmure Liberum recently warned of an 'immediate and violent' sterling crisis if Nigel Farage came to power and followed through on his plans to slash taxes. Reform has refuted this claim, saying it would focus on cutting spending first to ensure any tax cuts were affordable. The party has vowed to save taxpayers up to £35bn a year by scrapping interest payments on central bank reserves, which were created as part of the Bank's £895bn quantitative easing (QE) programme to boost the economy during the financial crisis and Covid lockdowns. Richard Tice, the party's deputy leader, sent a letter last week to Andrew Bailey, the Governor of the Bank of England, accusing Threadneedle Street of prioritising corporate profits over the interests of working people. He claimed the Bank was engaging in a 'systemic misuse of taxpayers' money' by paying interest and selling its existing stockpile of government bonds at substantial Street did not start paying interest on reserves until Ms Saporta did not reference Reform's plan directly in her comments, she warned that the pre-2006 system 'actively disincentivised banks from holding any more reserves than was strictly necessary' because they were not remunerated. She added: 'This complex, scarce-reserves framework came at the cost of significant overnight rate volatility.' Ms Saporta added that paying interest on money parked at the Bank underpinned its ability to influence the economy by controlling borrowing costs. Mr Bailey has previously said that stopping interest payments on reserves would undermine this power. The Governor has repeatedly spoken out against changing the way commercial lenders are compensated for parking their cash at the Bank, warning that it could undermine financial and monetary stability if lenders no longer wished to hold extra buffers. Ms Saporta said: 'By remunerating reserves at Bank Rate, we anchored short-term market rates to the Monetary Policy Committee's chosen policy rate – a core feature of the framework that remains in place today. 'Put simply, we implement monetary policy through the interest we pay on reserves, and this has delivered a significant improvement in our ability to steer market rates.' Responding to Ms Saporta's comments, Mr Tice said: 'This speech is designed to confuse people with technical detail. It avoids the basic principle that the system worked fine [pre-crisis], before QE, and ignores the fact that some other central banks are neither paying interest on QE reserves nor doing quantitative tightening.' Quantitative tightening is the term for winding down the significant holdings of bonds built up by the bank throughout successive crises. Critics, including Mr Tice, believe offloading bonds is detrimental to the UK as it is crystallising losses for the taxpayer and pushes up borrowing costs. The Bank is selling down its stockpile of bonds at heavy losses to the taxpayer. The Office for Budget Responsibility (OBR), the Government's tax and spending watchdog, expects the cumulative lifetime loss to total £133.7bn, which is bigger than the annual education budget and more than twice what the UK spends on defence. Ms Saporta signalled that it will keep running down its stockpile of government bonds. She said the Bank will continue to move to a more normalised system of providing cash on demand through what's known as repurchase or 'repo' operations. This suggests it will continue to reduce its balance sheet through quantitative tightening in order to help the 'system's flexibility to rapidly scale up reserves supply'. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
21-05-2025
- Business
- Yahoo
Richard Tice rows back on Reform's £90bn tax cut pledge
Richard Tice has backed away from Reform UK's promise to enact £90bn of tax cuts within 100 days if the party wins the next election. In an interview with The Telegraph, Mr Tice, Reform's deputy leader, said the sweeping programme of tax cuts was meant only to indicate 'the direction of travel'. The party would first have to demonstrate progress in achieving ambitious plans to cut £150bn from public spending before it could deliver lower taxes, he said. Mr Tice said: 'These are the tax cuts I want to get to. But we can't implement them until I've proven that I can produce the savings.' In its manifesto for last July's general election, the party listed a number of 'critical reforms' it said would be needed in the first 100 days. These included: lifting the income tax starting rate to £20,000 a year and the higher threshold to £70,000; abolishing inheritance tax on estates of less than £2m; scrapping VAT on energy bills; and cutting corporation tax from 25pc to 20pc. However, Reform's economic policies have come in for mounting criticism since its landslide gains in recent local elections, with a number of commentators accusing the party of fantasy economics and selling snake oil to the British public. Simon French, the chief economist at the City stockbroking company Panmure Liberum, has warned that the UK would face an 'immediate and violent' sterling crisis if Reform took power in 2029. By his calculation, the party's plans would leave the UK with a hole in public finances of between £70bn and £80bn. The Institute for Fiscal Studies has suggested that Reform is seriously underestimating the costs of its tax cuts, and overestimating the amounts that can be saved through cuts in spending. Mr Tice, who is widely tipped to become chancellor should Reform's surge in the opinion polls translate into an eventual general election victory, insisted that his 'numbers do add up'. He added that Reform would not implement tax cuts without first demonstrating that they could be paid for through reduced spending. In his interview, Mr Tice said that 'clearly you've got to also do what is achievable, and you've got to be cognisant of the bond markets, the financial market'. He promised there would be no repeat of the mini-Budget in 2022, which saw a bond markets meltdown after then-chancellor Kwasi Kwarteng announced tens of billions of unfunded tax cuts. 'We're not going to impose all of the cuts and do a Kwarteng without delivering on the savings,' Mr Tice said. The Reform UK deputy leader also rejected criticism of the party's plans to stop the Bank of England paying interest on reserves. The party wants the Bank to stop paying interest on the remaining £600bn of deposits created through quantitive easing (QE), the money-printing programme it undertook during the financial crisis and Covid. By paying interest on those reserves at the current base rate of 4.25pc, the Bank – and ultimately the taxpayer – is funnelling billions of pounds in interest to commercial lenders, which hold the money. Mr Tice said: 'I don't think the taxpayer should be shafted by paying voluntary interest that enriches city institutions. 'It's a transfer of wealth from the taxpayer to rich city institutions and their wealthy customers. And I just think it's wrong.' Critics of Reform's policy say abolishing interest payments would amount to a default. Andrew Bailey, the Bank of England Governor, has also warned that ceasing interest payments could damage the Bank's ability to keep inflation under control by influencing interest rates. Even QE's harshest critics, including Sir John Redwood, the head of the No10 policy unit under Margaret Thatcher, have branded the move a bank tax. The policy would deliver Reform's biggest planned saving in government spending, netting up to £35bn. Broaden your horizons with award-winning British journalism. Try The Telegraph free for 1 month with unlimited access to our award-winning website, exclusive app, money-saving offers and more.
