Counting the cost of quantitative easing...
TO NOBODY'S great surprise, the Bank of England's Monetary Policy Committee has announced another bout of £50 billion of Quantitative Easing, bringing the total to £325 billion. This is a staggering amount of money, the equivalent of £12,500 for every household in the land, writes Simon Rose of Save Our Savers.
Where is the evidence that QE is having any positive effect at all, other than helping to prop up our ailing, much-loved banks? Large companies have more than enough cash, thank you very much, and are simply sitting on it. The cash certainly isn't providing small and medium-sized businesses with the investment funds they need.
By pushing interest rates lower, QE is proving a killer blow to the pension hopes of millions of people and will force annuity rates down further. 20 years ago a pension pot of £100,000 would have bought an annuity providing income of £15,640 a year for life. Now it would produce only £5,800 and that will drop after today's news. With record numbers retiring, QE will have an appalling impact. Does the Bank care nothing for pensioners? Mervyn King, of course, is rather better insulated than most, with a pension pot of £5.36 million.
More QE (as well as keeping base rate at 0.5%) is terrible news for savers and all those on fixed incomes. Creating money from thin air (something you or I would be imprisoned for) will have one certain effect; it will stoke up inflation. The Bank once more repeats, parrot-like, its mantra that inflation, currently over double the 2% target, is in danger of dropping below it. The Bank admitted that the first round of QE boosted inflation by up to 1.5%. Yet more QE will hit everyone where it hurts, in their pockets, with savers worst off of all.
Thanks to negative real interest rates, £41.8 billion a year is being confiscated from the country's savers and pensioners. To set this in context, it means that every single year, enough money is being stolen surreptitiously to pay for the High Speed rail link from London to Birmingham – with £9.1 billion left over.
This is not only appallingly unjust. It is also economically illiterate. When the country desperately needs investment funds, the Bank of England is doing all in its power to undermine the providers of those funds.
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