It was good to be back in front of the Treasury Select Committee this week, as it opened its inquiry into Quantitative Tightening, alongside Andrew Sentance, Jagit Chadha and Katharine Neiss.
“The good, the unnecessary and the bad.” That’s how I described the UK’s experience with QE. Since 2008, we have had three phases with QE. The first post-GFC was good. Then the prolonged period of cheap money and further QE was unnecessary. Post-covid QE was bad.
The Committee wanted to know did the BoE have a policy for QT. I would differentiate between the technical / operational aspects, which work well. These are clear, predicable and easy to understand. But policy towards QT leaves much to be desired.
QT policy is unclear and untested. The speed, scale and sequencing of policy tightening needs to be sensitive to the economy – and two wrongs do not make a right. The BoE was wrong to ease in the pandemic & it would be wrong to over tighten now.
You can read the transcript of the whole session here, or watch it here.