Staff of Reuters 3 Minutes to Read (Reuters) – LONDON (Reuters) – According to the chair of a parliamentary committee, the Bank of England is “addicted” to the over 900 billion pound ($1.25 trillion) bond-buying program it has used to steer Britain’s economy through the previous decade’s upheavals. PHOTO FROM THE FILE: The Bank of England and the Royal Exchange are reflected in a puddle as a pedestrian walks by in London, Britain, on November 19, 2020, during the coronavirus illness (COVID-19) outbreak. FILE PHOTO: REUTERS/Simon Dawson The Bank of England must explain why it is not reducing its massive stimulus in the face of growing inflation, according to a report released on Friday by the Economic Affairs Committee of the House of Lords, parliament’s unelected upper house. In the depths of the 2008-09 financial crisis, the BoE, like other central banks, turned to quantitative easing (QE) after cutting interest rates, its traditional instrument, to near zero. Since the commencement of the coronavirus pandemic, the stock of primarily government bonds has nearly doubled in size to around 840 billion pounds. By the end of 2021, when the BoE’s current round of acquisitions is expected to be completed, the amount is expected to reach 895 billion pounds. Michael Forsyth, chair of the EAC, said the program, which accounts for approximately 40% of British annual economic activity, needed more answers from the Bank of England on its performance and effects on wealth inequality. Forsyth, a member of Prime Minister Boris Johnson’s Conservative Party, said, “The Bank of England has gotten hooked to quantitative easing.” “The long-term health of the public finances is jeopardized by quantitative easing. A comprehensive plan for unwinding QE is required, and this plan must be made public.” Former BoE Governor Mervyn King, who initiated the BoE’s asset purchase program in 2009, is a member of the committee. According to the EAC report, it was clear that the Bank of England was buying bonds to fund the government’s borrowing during the COVID-19 outbreak, jeopardizing its credibility. In response, the Bank of England stated that its purchases were solely intended to stabilize the economy and financial markets, as per its public mandate. “It is incorrect to suggest that the Monetary Policy Committee followed a different policy, namely to support the government’s borrowing during the crisis,” a spokesperson for the Bank of England stated. “This claim is not backed up by evidence. The MPC has never stated that this is its policy.” As the economy recovers from last year’s nearly 10% drop and inflation rises over the Bank of England’s target of 2%, two policymakers warned this week that the time for the BoE to start easing its stimulus may be nearing. (1 dollar = 0.7214 pounds) William Schomberg wrote the piece, and David Milliken edited it./n
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