Government and Bank of England respond to Treasury Committee report on quantitative tightening

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• Inquiry: Quantitative tightening
• Treasury Committee

The Bank of England is the first major central bank to vote to sell debt back to the market through active QT. In its report, the Committee raised concerns the Bank may be doing so without being able to fully consider the broader economic consequences. MPs on the Treasury Committee therefore concluded the Bank’s plans constituted a ‘leap in the dark’.

During its inquiry, MPs heard potential lifetime losses of the Bank’s QE and QT programmes could end up between £50 billion and £130 billion. The Committee described it as 'highly anomalous’ that value-for-money considerations had not been applied for this work. The Government has sought to reassure the Committee that it will keep its approach under review and consider any lessons learned should QE be used again in future.

In its response, the Government and Bank did not make a commitment to consider the pace and timing of selling gilts back into the market in order to better understand potential impacts on the Treasury’s spending power.

Following a request for clarity from the Committee on the Chancellor of the Exchequer’s role in authorising changes to the Treasury’s indemnity of Bank losses as QE expanded, the department confirmed the Chancellor does receive detailed analysis from his officials on any proposed changes and could reject requests for an increased asset purchase facility.

However, it cautioned against “evaluating the overall value for money of monetary policy decisions on an ongoing basis.”
The Bank of England refused the Committee’s request to set out whether it thinks that all individual rounds of QE have proved to be good value for money considering the fiscal cost which was ultimately incurred.

Commenting on the Government response, Chair of the Treasury Committee Dame Harriett Baldwin MP said:

“Our Committee sought to draw attention to decisions made by the Bank of England which we feel may have knock-on economic effects that are not fully understood. We will continue to monitor the progress of the Bank’s quantitative tightening programme as part of our future work.”

Further information

• About Parliament: Select committees
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