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Home > Monetary Policy > Quantitative easing - Frequently asked questions
 

Quantitative easing - Frequently asked questions

Who decides on QE in the UK?
Why was QE needed in the UK?
What is the history of QE in the UK?
How does QE work?
How long will QE last?

Who decides on QE in the UK?

QE is decided by the Bank of England’s Monetary Policy Committee (MPC)  chaired by the Governor.  This Committee sets monetary policy – interest rates and QE – in order to deliver the inflation target, which is currently for CPI inflation of 2%.   

Why was QE needed in the UK?

Quantitative easing was first used by the MPC in March 2009.  The official interest rate (Bank rate) had been reduced to 0.5% and the MPC judged that it could not practically be reduced below that level.   So in order to give a further stimulus to the economy, the MPC decided on a program of QE.  Without that extra spending in the economy generated by QE, the MPC thought that inflation would be more likely in the medium term to undershoot the target.  
 

History of QE in the UK

Between March and November 2009, the MPC decided to purchase £200 billion of financial assets (i.e.QE), mostly UK Government debt or 'gilts'.  Since then the MPC has decided on further purchases:  £75 billion in October 2011; £50bn in February 2012 and £50bn in July 2012.  That brought total assets purchases to £375 bn. There have been no further asset purchases since then.  But any funds associated with purchased bonds maturing have been reinvested, so the total stock of QE remains £375bn. 
 

How does QE work?

The Bank of England electronically creates new money and uses it to purchase gilts from private investors such as pension funds and insurance companies. These investors typically do not want to hold on to this money, because it yields a low return. So they tend to use it to purchase other assets, such as corporate bonds and shares. That lowers longer-term borrowing costs and encourages the issuance of new equities and bonds and that should stimulate spending.  When demand is too weak, QE can help to keep inflation on track to meet the 2% target.

QE does not, as is sometimes suggested, involve printing more banknotes.  And QE is not about giving money to banks.  Rather, the policy was designed to help businesses raise finance without needing to borrow from banks.  And also to lower interest rates for all households and businesses.  
 
 

How long will QE last?

In the February 2014 Inflation Report, the MPC said that it plans to maintain the £375bn stock of assets purchased, including reinvesting the cash flows associated with any of those assets that mature, at least until Bank Rate has been reached a level from which it could be cut materially, if that was needed.  See the February 2014 Inflation Report for more information.
 
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Key Resources

​Quantitative Easing (QE) - injecting money into the economy

The United Kingdom's quantitative easing policy: design, operation and impact
Quarterly Bulletin, 2011 Q3

The Distributional Effects of Asset Puchases
12 July 2012

Money Creation in the modern economy
By Michael McLeay, Amar Radia and Ryland Thomas of the Bank’s Monetary Analysis Directorate.

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