Bank of England calls time on £895bn money-printing blitz

The Bank of England is bringing the curtain down on its £895billion money-printing programme after almost 13 years.

The Bank said yesterday it would start unwinding the controversial ‘quantitative easing’ scheme launched in March 2009.

The decision came as the central bank hiked interest rates from 0.25 per cent to 0.5 per cent, having raised them from 0.1 per cent at its last meeting in December. 

It was the first time the Monetary Policy Committee (MPC) has raised rates at consecutive meetings since 2004 and only the fourth rate hike in the past 15 years.

The unwinding of QE will see the Bank sell the £20billion of corporate bonds it has bought by the end of 2023. 

And it will no longer reinvest the money it receives when the government gilts it holds mature – meaning the pile of debt the Bank owns starts to dwindle.

The decision will see its stock of gilts reduced by £27.9billion this year and by just over £70billion in total by the end of next year.

Laith Khalaf, head of investment analysis at AJ Bell, said: ‘The Bank is clearly now in hawkish mood and is taking soaring inflation seriously. Many will ask what took so long, but as they say, it’s better late than never.’

QE was first used by the Bank in 2009, to help kick-start the economy in the aftermath of the financial crisis.

It was revived after the Brexit vote and again in 2020 as the UK suffered an economic slump when the Covid pandemic struck.

The scheme involved the Bank of England creating money to buy government gilts and corporate bonds – loans from investors to the state and companies. 

By buying the bonds, the central bank pushed down borrowing costs and freed up cash for investors to plough into other areas – effectively injecting money into the economy.

But its decision to bring QE to an end shows just how worried the Bank is becoming about inflation which it now believes will top 7 per cent this spring.

By continuing to pump money into the economy, experts worried that Threadneedle Street was fuelling higher demand, pushing up prices and adding to the cost of living squeeze.

The Bank of England completed £445billion of QE in the eight years following the financial crisis, and since the pandemic struck it has spent another £450billion. 

The Bank said it will steer clear of selling any gilts until interest rates have risen to 1 per cent. 

But economists are expecting that to happen this year, so it may not be long before it is spurred into further action. 

Paul Dales, chief UK economist at Capital Economics, said: ‘If the Bank also follows its guidance to sell some gilts once Bank Rate rises to 1 per cent, it’s possible that all of the £450billion of QE launched during the pandemic will be reversed by the end of 2024.’

That would come as a relief to critics of the QE scheme, who claimed the Bank was risking its independence by effectively bank-rolling the Government’s spending. 

And a report from its own internal watchdog last year concluded that officials did not have a thorough understanding of their own QE programme.

Some City investors admitted the scheme helped them become richer. Sir Paul Marshall, a hedge fund veteran, told the BBC: ‘In a way markets are addicted [to QE] and central banks have become very nervous about removing the drug.’