The Bank of England’s “unconventional” use of monetary policy is to be investigated amid fears among MPs it has had unintended consequences for the economy.
The Treasury Select Committee said its probe would determine the impact of low interest rates and quantitative easing (QE) in areas such as the housing market and savings. The investigation will also examine the risk of political pressure undermining the Bank’s independence following Theresa May’s criticism of the side effects of monetary policy decisions taken during the governorship of Lord Mervyn King and then Mark Carney.
The PM said in October that while unconventional monetary policy had acted as “emergency medicine” after the
financial crash, there had been “some bad side effects”. She said then: “People with assets have got richer. People without them have suffered. People with mortgages have found their debts cheaper. People with savings have found themselves poorer. “A change has got to come. And we are going to deliver it.”
The Bank has consistently defended its stimulus programme, arguing that raising rates after the financial crisis risked choking off UK economic growth. It credited QE – which sees the Bank print money to buy government bonds – for boosting the flow of cash to keep banks lending. Deputy governor Ben Broadbent has denied the policies have damaged wealth and income distribution amid suggestions QE has only served to help boost stock market values for those with means. Governor Mark Carney has already told the committee that policy action in August – which included a new rate cut to a record low of 0.25% – had helped protect the economy amid Brexit vote uncertainty. He argued the Bank was “keeping the patient alive” and problems associated with things like weak wage growth ran much deeper than monetary policy.
His recent appearances before MPs have proved somewhat frosty – with the governor’s pre-referendum comments about a possible recession in the event of a Leave win angering one member of the committee in particular. Jacob Rees Mogg, a Tory MP who was once tipped as a possible replacement for Mr Carney before he confirmed his intention to remainin the role, openly questioned Mr Carney’s independence in the campaign. Committee chairman Andrew Tyrie said: “Interest rates are stuck near zero, the Bank of England has used increasingly unconventional forms of quantitative easing, and inflation has been below the 2% target for three years.
“The efficacy of monetary policy or otherwise, its unintended consequences, and its prospects, need careful examination.”