WERDIGIER, JULIA

Yale University

Yale University EliScholar – A Digital Platform for Scholarly Publishing at Yale YPFS Documents Browse by Media Type 8-5-2009 Bank of England May End Bond Buying JULIA WERDIGIER Follow this and additional works at: https://elischolar.library.yale.edu/ypfs-documents Recommended Citation WERDIGIER, JULIA, "Bank of England May End Bond Buying" (2009). YPFS Documents. 1756. https://elischolar.library.yale.edu/ypfs-documents/1756 This Document is brought to you for free and open access by the Browse by Media Type at EliScholar – A Digital Platform for Scholarly Publishing at Yale. It has been accepted for inclusion in YPFS Documents by an authorized administrator of EliScholar – A Digital Platform for Scholarly Publishing at Yale. For more information, please contact elischolar@yale.edu. 6/22/2018 Bank of England to Decide Whether to End Bond Buying Program - The New York Timeshttps://www.nytimes.com/2009/08/06/business/global/06pound.html?rref=collection%2Ftimestopic%2FBank%20of%20England 1/4GLOBAL BUSINESSBank of England May End Bond BuyingBy JULIA WERDIGIER AUG. 5, 2009LONDON — Five months ago, the Bank of England started a controversial programto purchase financial assets to help put Britain’s economy back on its feet.On Thursday, the central bank’s policy committee is expected to decide whetherto end the program.Economists and investors are split. Those who favor an expansion say the planhas only marginally improved the supply of credit and more needs to be done. Thosewho oppose an extension say that Britain’s economy is showing signs ofimprovement and no further asset purchases are needed.Recent comments and actions by Bank of England officials point toward atemporary halt of the plan as the central bank awaits clearer signs of whether arecovery is under way.Back in March, the central bank initially planned to buy government bonds andother assets like commercial paper worth £75 billion ($127 billion) with newlycreated money. It raised the amount to £125 billion two months later as the economydeteriorated. In July the central bank voted against raising the amount again andthat sum has now been spent.6/22/2018 Bank of England to Decide Whether to End Bond Buying Program - The New York Timeshttps://www.nytimes.com/2009/08/06/business/global/06pound.html?rref=collection%2Ftimestopic%2FBank%20of%20England 2/4Since the start of the program, concerns about the fragility of Britain’s economyhave somewhat abated. Yields on government and corporate bonds have fallen,which could bring down some borrowing costs.Recent economic data have offered some reason for optimism. The service sectorexpanded the most in more than a year in July, and manufacturing unexpectedlyrose as companies produced more cars and computers. Also in July, consumersentiment improved and house prices increased for a third month.“If you see the economy improving, you don’t want to come in with the sameactions as you did when the situation was really dire,” said Simon Hayes, aneconomist at Barclays Capital in London.Others argued that it was too early to stop the program. The British Chambers ofCommerce, a business lobby group, said on Wednesday that the bank must not “belulled into a false sense of security” by the recent data and should continue theprogram.One reason opinions vary so much is that the effectiveness of quantitativeeasing, or the asset purchases, is extremely difficult to measure. The programcoincided with several other government plans to counter a credit squeeze, fromguaranteeing some assets to putting political pressure on bank executives to lendmore.History is not much help, either, since economists still cannot agree on theeffects of a similar program of quantitative easing in Japan at the beginning of thecentury.“It’s impossible to know whether it worked, but if you want to expandquantitative easing, then you have to think that it is working and that £125 billionisn’t enough,” said Amit Kara, an economist at UBS in London and a former Bank ofEngland official.Mervyn King, governor of the Bank of England, said the main goal of the assetpurchase program was to increase the supply of credit to the wider economy: Thecentral bank’s debt purchases would free up banks to lend more.6/22/2018 Bank of England to Decide Whether to End Bond Buying Program - The New York Timeshttps://www.nytimes.com/2009/08/06/business/global/06pound.html?rref=collection%2Ftimestopic%2FBank%20of%20England 3/4Michael Taylor, a senior economist at Lombard Street Research in London, saidthis objective had not been reached yet, a reason for the central bank to continue tobuy government bonds.“It’s the right policy,” Mr. Taylor said. “They just need to throw more mud at thewall for more of it to stick.”Banks remain reluctant to lend as they take larger write-downs from loan losses.Lending to retail or manufacturing companies and other nonfinancial firms fellby a record £14.7 billion in the second quarter. This, in turn, has reignited criticismthat lenders are hoarding the newly created funds.Some economists also warned that halting the asset-purchase plan might send asignal to the consumer that the Bank of England was moving closer to increasinginterest rates again, which could stop any recovery in its tracks.Others said improving the availability of credit would not be enough to repairBritain’s economy because there was also a lack of demand for loans as companiesshrink rather than expand.A recent comment by Charles R. Bean, the central bank’s deputy governorresponsible for monetary policy, hinted that the bank might prefer a wait-and-seeapproach. Mr. Bean said in July that quantitative easing could take nine or moremonths to show effects and work itself through the financial system, and indicatedthat the central bank would prefer to keep an eye on economic data until Novemberbefore making a decision.The Federal Reserve, the only other central bank that decided in favor of large-scale quantitative easing, already has started to scale back the measures it set up tohelp end the recession. It announced in June that it would not extend one of itsemergency lending programs and would cut back two others.The European Central Bank, which is to announce its interest rate decision onThursday, has resisted pressures to adopt any such measures.6/22/2018 Bank of England to Decide Whether to End Bond Buying Program - The New York Timeshttps://www.nytimes.com/2009/08/06/business/global/06pound.html?rref=collection%2Ftimestopic%2FBank%20of%20England 4/4Economists who support a halt in quantitative easing said Britain’s economywas in better shape now than it was in May, when the central bank expanded theprogram. “There have been reasonable indications that the economy is recoveringand you’d expect money flow to go along with that,” Mr. Hayes said. “When theyextended the program there was a lot of concern about deflation. That has easednow.”“There is an argument for extending the program because it’s better to err onthe side of aggression,” Mr. Hayes said. “But for the bank, the £125 billion wasalready erring on the side of aggression.”A version of this article appears in print on , on Page B8 of the New York edition with the headline: Bankof England May End Bond Buying.© 2018 The New York Times Company

Bank of England May End Bond Buying

https://elischolar.library.yale.edu/cgi/viewcontent.cgi?article=2804&context=ypfs-documents

Bank of England May End Bond Buying

Abstract

Similar works

Full text

Available Versions

Yale University