So will the Bank of England want to print another £25 billion or not? That is today’s question.
When they started the programme the Bank said it should be judged by whether it eased lending through the banks. It has not done that so far. Money remains quite tight if you are a small business or someone seeking a mortgage.
Subsequently they said it should be judged by whether the money supply increased or not. Judged by that criterion it has made a modest impact, but there is still little growth.
Maybe they wanted it to keep government borrowing rates down, given the huge sums the government has to borrow. It has not even done that, as gilt yields, the price the government pays to borrow, have gone up.
So what has it done? It has helped fuel a substantial recovery in asset prices. Alongside the big US money printing programme, we are witnessing the early stages of a familiar asset bubble created by the action of the authorities. It is exactly what the US did several times in the last twenty years and what this government did in the period 2003-7.
That is helping sentiment, leading to a concerted spin effort to create a feel good factor. I’m all in favour of looking at the mint rather than hole wherever possible, and hope they succeed in pulling us out of the nosedive the economy was in.
We need to remember, however, several things. The first is unemployment is still rising and looks set to do so some more. This will dampen spending. Where companies are reporting better profits, it has happened thanks to cost cutting, not to growth in business. The huge and temporary stimulus from government has to end sometime, and then we are left with the massive public sector debt overhang. That needs repaying, which means less public spending or with this government higher taxes.
The truth is the UK lived well beyond its means for too long prior to the crash. This government’s actions in the short term can create a bit better mood, but at the cost of a worse problem in the longer term. This policy is just for an election. I suspect the government wants them to print some more, so I guess that’s what they will do.