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Hundreds of billions of pounds' worth of stimulus pumped into the economy by the Bank of England under its vast quantitative easing programme has been a waste, according to new research.
In analysis released ahead of a report into the effects of QE in the UK, The Wriglesworth Consultancy said the monetary policy tool has made the wealthiest 5% even richer, worsened the economic recovery, made pension pots smaller, failed to stimulate business investment, and given a bonus to financial services.
To help the economic recovery by keeping markets liquid and underpinning asset prices, in turn allowing businesses to borrow or raise equity and invest in jobs and expansion, the Bank of England launched a Treasury-approved quantitative easing programme in 2009.
It involves the Bank buying up gilts – UK sovereign debt – from the markets. The programme, called the Asset Purchase Facility, has grown to a total value of £375bn.
"QE has created a significant redistribution to the rich – effectively a Robin Hood tax in reverse," said Rob Thomas, director of research at The Wriglesworth Consultancy and former Bank of England economist.
"The only reason this has not caused more uproar, is that it is hidden from view.
"But QE has had a real and dramatic effect on the distribution of wealth in this country – and with little apparent benefit to business investment or real wages."
Wriglesworth estimates that the wealthiest 5% of the UK were given a £215,000 boost each from QE.
This is because Bank of England data estimates that the first £200bn of QE increased the net financial wealth of UK households by 16%.
Wriglesworth extrapolated this to the full £375bn and took into account that the top 5% of households own 40% of financial assets.
And, rather than raise business investment, Wriglesworth argues that by increasing wealth at the top QE has driven consumption instead.
A bugbear of the economic recovery for policymakers is its reliance on household consumption and the housing market rather than business investment and trade.
Moreoever, by boosting bond and share prices via QE the Bank of England has artificially lifted the profits of financial firms – another portion of the economy the government is trying to rebalance away from.
Pensions have been hit by the depressed gilt yields. Pension funds rely on long-term investments such as sovereign debt, with gilts being a particularly popular choice.
But the Bank of England's gilt purchases have forced yields down to historic lows, dwindling returns on pension funds and pushing those already in deficit to an even more precarious position.