The rich have benefited most from QE, admits Bank of England


By Andrew Barr

The Bank of England has defended its quantitative easing (QE) policy despite mainly benefitting the wealthiest top 5 per cent of households in the UK.

The Bank insists that most of the population are consequentially better off due to the impact the policy, which is essentially printing more money, has had on the wider UK economy.

“Some individuals are likely to have been adversely affected by the direct effects of QE.  Many households have received lower interest income on their deposits,” the Bank said.

“But changes in bank rate – not asset purchases – have been the dominant influence on the interest households receive on bank deposits and pay on bank loans.

“By pushing up a range of asset prices, asset purchases have boosted the value of households’ financial wealth held outside pension funds, although holdings are heavily skewed, with the top 5% of households holding 40% of these assets.

“QE has caused the price of gilts [government bonds] to rise and yields to fall, in turn leading to an increase in demand for, and price of, a wide range of other assets, including corporate bonds and equities.

“That has lowered borrowing costs for companies and households and increased the net wealth of asset holders, both of which have acted to stimulate spending.

“Most people in the United Kingdom would have been worse off without this response, including savers and pensioners,” the Bank added.

However the Bank has been heavily criticised by groups representing the interests of savers and pensioners because of its impact on annuity rates, gilt yields and interest rates, all of which have fallen since the quantitative easing policy began.  Many pensioners have seen the value of their savings drop as the bank floods the country with more notes.

Ros Altmann, director general of Saga, said: “It is asserted, but not proven, that pension savers are no worse off due to QE gilt-buying, because the value of their pension savings has gone up to offset the fall in the annuity income they will receive when converting their pension fund into a pension income.  This assertion is simply not correct and the reality is very different for those recently or soon-to-be-retired.

“The fall in annuity rates since mid-2008 is over 24%. Cumulative inflation for older age groups has risen by over 20%. The FTSE is relatively unchanged and the average balanced pension fund has performed poorly, so that for people with defined contribution pensions, the impact of QE in reality has not been as the Bank of England is assuming.”

The National Association of Pension Funds has described the figures as having a “broadly neutral impact” but suggested that schemes already in substantial deficit before the financial crisis were “likely to have seen those deficits increased.”

The quantitative easily policy means that the Bank of England now holds more than a third of all UK Government bonds currently in issue.