Its Official ! QE is working in the UK says Bank of England’s retiring Deputy Governor


Interviewed by the Daily Telegraph Friday 19th October, the outgoing deputy governor of the Bank of England Mr Tucker claimed that the Bank’s policy of quantitative easing (QE), that has pumped £ 375 billion into the UK economy by means of purchases of UK government bonds from financial institutions, is finally working.

He was quoted as saying: “We’ve provided an extraordinary degree of monetary stimulus and the whole euro area crisis was like switching it off. I felt that as soon as [fears] receded, spirits would revive and the existing monetary stimulus would gain traction. And I think that’s what has happened.”

Like all central bankers these days, Mr Tucker is a “data driven” economic soothsayer. The credibility of his claim hinges on the UK’s officially  recorded 2nd quarter 2013 GDP growth rate of 0.7% and the soon to be published 3rd quarter rate which is expected to be  0.8%.

So are there now grounds for optimism first, of a genuinely sustainable economic recovery in the UK; and secondly, that the Bank of England’s QE policy is vindicated ? Or is the outgoing Deputy Governor  “talking his book” in an attempt at protecting his legacy role in the Bank’s management of monetary policy in the period following the financial crisis of summer 2008 ?

What of the purported recovery in the UK economy then ?  In the private sector it is evident that there is increased activity in the housing market, with house prices returning to pre-crisis highs in London and much of the south east of England. However the rise in buying and selling is being driven primarily by a change in lending policy by banks and building societies who, recently gifted £80 billion spending money from the Chancellor of the Exchequer in the “Help to Buy” scheme, have substantially increased mortgage lending at low rates of interest for the first time since withdrawing mortgage credit from the housing market in the aftermath of the last burst “bubble” of 2009.  This has little or nothing to do with QE.

Elsewhere in the private sector, there is no evidence of improvement in either exports or private business investment. The Chairman of the Office for Budget Responsibility, Robert Chote, stated earlier this month that private investment, particularly from business, had been “almost completely absent” since the outbreak of the financial crisis. His statement is supported by revised data for the 2nd quarter of 2013 published by the Office of National Statistics regarding gross fixed capital formation (GFCF), of which business investment is one part.

Whereas GFCF for that 2nd quarter did rise 0.8% compared to the previous quarter, all of that increase was accounted for by a massive 14.1% growth in “General Government” spending. Furthermore, 2nd quarter GFCF was 5.3% lower when compared to the quarterly figure 12 months previously.  The category suffering the greatest per cent fall in capital formation was “other machinery and equipment” with a collapse of 11.2%.

To summarise, in the real economy investment still trends lower with the sole exception of the government’s own spending. The worst hit category of investment is precisely the one that has the greatest potential to generate productivity gains, namely machinery and equipment. The upturn in the private housing market has all the characteristics of an incipient “bubble” blown by the £80 billion largesse of cheap money supplied by the UK government to banks to fund mortgage credit. Lastly, any GDP growth effect from consumer demand is merely transient driven by rising personal debt levels and reduced savings ratios. The bigger trend for households is a continuing decline in real disposable incomes.

An exclusive focus on the recent performance of the UK’s real economy is not, of course, the whole picture if the aim is to assess the “success” of QE. A very different dynamic emerges if we consider the stock market, bond markets and the financial sector.

Nevertheless, both central bankers and governments are determined to sell to the public at large the belief that there is a recovery in the real economy; one that they have engineered and should be applauded for as the next pre-electoral cycle shifts into gear. Their own published data – suitably sanitised and manipulated – fails to support their argument.

PART TWO to follow


  1. I see that there are no comments so that could be because everybody agrees with you or there is no one prepared to publish your views in the mainstream media. I am a Mises follower so I feel intense frustration about the way the Government has total control over the media and it does work.
    I have an English friend who has just returned to Thailand, where I live, and he parrotted all the positives about how well the UK is doing economically. This guy is no fool and has fairly cynical views about government in general.
    Whilst it may be satisfying to be able to say”I told you so” when the economic implosion does come, it would be highly motivating to have some influence before that time.
    Anyway it is good that you are playing your part.

    • Editor says:


      Thanks for your comment. There is no economic recovery in the UK. What there is, is a set of minor conjunctural factors that have temporarily marginally improved. Notably, there is more activity in the housing market and also some reduced increase in the officialy-measured price inflation rate. The housing market upturn is fueled primarily by pre-electoral government intervention with massive new funding for mortgages provided to the banks. The weakening of consumer price inflation is accounted for mainly by the recent rise in the exchange rate of the pound sterling.

      The fundamentals remain unchanged. There is still a rising trend in total government debt, with the ratio of debt to GDP way in exceess of the 90% threshold at which GDP growh rates have been shown by Rogoff and Reinhart inexhorably to decline. There remains an average annual budget deficit in excess of £120 bilion. So government continues to expand. Then consider total investment: the private sector is not investing even with negative real interest rates. Investment growth is evident only in the segment called “general government”. The banks are not lending to business, especially not small andmedium sized enterprises which are at the heart of job creation in expansionary times.

      Exports are stagnant, partly due to the strength of sterling but more so due to the depression in the Eurozone and the failure of UK businesses to increase sales into non-EU emerging markets. Savings are at historically low levels; households, while partially deleveraged from the excesses of 2007, are nevertheless still living off consumer credit.

      Unemployment is high. Part time low paid work as a proportion of all those in work is increasing. Real incomes of the middle class have been falling for over 5 years and continue to weak Unemployment for the young is even higher.

      You are absolutely right that the mainstream media is largely sycophantic in its reportingc of government and the central bank policy makers. There are a few honorable exceptions. But,to my knowledge, there is no one who is explicitly within the camp of Austrian economics who has a platform from within MSM. Perhaps the reason for this, first and foremost, is simply that there are no higher educational institutions that teach it. All those graduating in economics or finance are inculcated with Keynesian economics. At the most, in their microeconomics course they will have learned about marginal utility. But rather than present that in the terms of its originator – Carl Menger – it will probably be communicated more through the work of Alfred Marshall who subverted it by ignoring Menger’s essential methodological individualism.

Leave a Reply

Your email address will not be published. Required fields are marked *