The Treasury Committee has published responses from the
Government, Bank of England and Debt Management Office to its
report on the programme of
active quantitative tightening (QT) undertaken by the Bank of
England following a period of quantitative easing
(QE).
The Bank of England is the first major central bank to vote to
sell debt back to the market through active QT. In its report,
the Committee raised concerns the Bank may be doing so without
being able to fully consider the broader economic consequences.
MPs on the Treasury Committee therefore concluded the Bank's
plans constituted a ‘leap in the dark'.
During its inquiry, MPs heard potential lifetime losses of the
Bank's QE and QT programmes could end up between £50 billion and
£130 billion. The Committee described it as 'highly anomalous'
that value-for-money considerations had not been applied for this
work. The Government has sought to reassure the Committee that it
will keep its approach under review and consider any lessons
learned should QE be used again in future.
In its response, the Government and Bank did not make a
commitment to consider the pace and timing of selling gilts back
into the market in order to better understand potential impacts
on the Treasury's spending power.
Following a request for clarity from the Committee on the
Chancellor of the Exchequer's role in authorising changes to the
Treasury's indemnity of Bank losses as QE expanded, the
department confirmed the Chancellor does receive detailed
analysis from his officials on any proposed changes and could
reject requests for an increased asset purchase facility.
However, it cautioned against “evaluating the overall value for
money of monetary policy decisions on an ongoing basis.”
The Bank of England refused the Committee's request to set out
whether it thinks that all individual rounds of QE have proved to
be good value for money considering the fiscal cost which was
ultimately incurred.
Commenting on the Government response, Chair of the
Treasury Committee Dame Harriett Baldwin MP said:
“Our Committee sought to draw attention to decisions made by the
Bank of England which we feel may have knock-on economic effects
that are not fully understood. We will continue to monitor the
progress of the Bank's quantitative tightening programme as part
of our future work.”
ENDS
Notes to editors:
· The press notice for
Quantitative Tightening can be found here.
· Quantitative tightening
(QT) is the converse of quantitative easing (QE). QE is the
purchasing of government debt by the Bank in order to stimulate
the economy.
