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ClimateNE & Climate Change Schools Project support the move to a low-carbon, resilient economy and help businesses avoid risk and realise commercial opportunities. Posts by Jen Atkinson, Krista McKinzey and Harriet Thew » THE Bank of England's recent decision to pump another ã50bn into Britain's ailing economy has cast doubt on the healing ability of so-called Quantitative Easing (QE).
The policy - where the Bank buys up gilts from investors with newly created funds - has boosted money supply by ã175bn since January in a bid to get credit flowing into the wider economy.
But there's little evidence that local businesses are seeing the benefit yet.
This is partly because the money is being hoarded by mainstream banks intent on repairing their battered balance sheets.
They're using the new funds to reduce their loan to deposit ratios - previously skewed heavily towards the former - and lessen their dependence on unreliable wholesale funds.
Unlocking the lending vault to homeowners and businesses would have the opposite effect.
The banks' recent reporting season suggests that QE has been good for finance houses but not for business.
Bank of England figures show a ã14.7bn fall in loans to businesses between April and June - and even those who've got their hands on the money have had to pay through the nose for it.
It is nearly eight months since QE was first announced and its effects should be starting to filter through to business by now.
But there's little chance of that happening until the price of credit becomes more affordable. A survey of small retailers by the British Retail Consortium (BRC) found that 44% were hit by higher lending costs over the past three months, despite a record low base rate of 0.5%.
There's a possibility, too, that QE may work against an economic recovery by weakening sterling's recent revival against the dollar.
It could also stamp out signs of confidence highlighted by several business surveys in recent weeks.
Is QE the antidote to Britain's ailments or an expensive waste of time?
The problem is, nobody knows and for that reason the Bank should have kept the pause button on hold for longer.
Throwing more money at a problem is not necessarily the best way of solving it.
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