Quantitative easing (QE): what it means
The Bank of England's purchase of assets, mainly government bonds, with newly created central bank money to lower longer-term interest rates and support spending.
Quantitative easing (QE) is a monetary policy tool in which the Bank of England creates central bank reserves and uses them to buy assets, mostly UK government bonds (gilts). The aim is to lower longer-term borrowing costs and support spending so that inflation meets the 2% target. The Bank first used QE in 2009. Reversing it, by reducing the stock of bonds held, is known as quantitative tightening (QT).
Worked example
If the Bank buys a hypothetical £10 billion of gilts from investors, those investors receive £10 billion in bank deposits, and their banks receive £10 billion in reserves at the Bank of England. Higher demand for gilts tends to push up their prices and push down their yields.
How it trips up claims
- QE is not the government printing money to spend: the Bank buys existing bonds in the market, and decisions are made by the independent Monetary Policy Committee.
- Interest the Bank pays on reserves is linked to Bank Rate, so the effect of QE on the public finances changes as Bank Rate changes. The ONS and OBR report these effects.
Also searched as: QE, quantitative tightening, QT, asset purchase facility, money printing
Official figures that use this term
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Key figures where it matters
- Bank of England Bank Rate
- UK public sector net debt
- UK central government debt interest
- UK 10-year gilt yield
Questions that use this term
- What is the Bank of England base rate today?
- What is the UK M4 money supply?
- How much does the UK spend on debt interest?
Related terms
- Bank Rate: The interest rate the Bank of England pays on reserves held by commercial banks. Set by the Monetary Policy Committee, it is often called the base rate.
- Gilts: Bonds issued by the UK government to borrow money. They pay a fixed interest (coupon) and repay the face value at maturity; index-linked gilts rise with RPI.
- Public sector net debt (PSND): The public sector's financial liabilities, mainly government bonds, minus its liquid assets such as cash. The headline measure of the national debt.
More inflation, prices and the economy terms: CPI (Consumer Prices Index) · CPIH · RPI (Retail Prices Index) · Core inflation · Nominal GDP · Chained volume measure · Purchasing power parity (PPP) · Bank Rate · Quantitative tightening (QT) · GDP deflator · Output gap · Productivity.