Bank of England should review its QE program
The Bank of England has come to the conclusion that the quantitative easing program has showed little signs of improvement as the amount worth £125 billion put so far into the economy came back to bank via investors.
The Bank said the money received from the sale of gilts is being spent on the purchase of bank shares rather than buying other assets. Investors' this step kept the broad money within the banking sector.
Last week, governor Mervyn King wished to expand its QE program by additional £75 billion. But, other members of the MPC favored to expand the program by just £50 billion.
During the crisis, the bank helped bond liquidity and encouraged trading via purchase of bonds.
But, now when the market has started working efficiently again and there are few dealers left to sell their bonds, the bank should stop buying bonds otherwise it would put its on cash on risk in case corporate-bond market turns sour.
The Bank has plans to lift the interest rates before unwinding its QE program once the economy starts reviving. At present, interest rates are at their historically low level of 0.5 per cent.