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Friday, February 3, 2023

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Former BOE official says buying bonds overdone during the pandemic

A former Bank of England policymaker said the central bank implemented too much quantitative easing during the pandemic, without properly assessing whether it was necessary.

Gertjan Vlieghe drew a critical contrast between the £450 billion ($545 billion) program launched in response to the Covid crisis and the recent BOE intervention to calm bond markets following former Prime Minister Liz Truss’ ill-fated fiscal easing.

“It was very clear that they were only buying the lowest amount necessary to achieve any stabilization,” he told a conference in London on Thursday. “That was very different from the experience in the March 2020 episode when I was on the committee and we just bought massive amounts with no feedback from the market. We just kept doing it, and keep doing it.”

His comments echo those of BOE chief economist Huw Pill, who suggested earlier this month that continuing stimulus during the pandemic was a mistake and contributed to the current skyrocketing inflation. Pill was not a member of the Monetary Policy Committee at the time.

Vlieghe, a member from 2015 to 2021, said the central bank had probably gone too far with its QE efforts. “In hindsight we waited way too long to say the markets are pretty stable now, you don’t need to buy these huge volumes anymore.”

Vlieghe also accused Truss and her team of paving the way for the market turmoil in September and October by attacking the BOE and the Office for Budget Responsibility, Britain’s fiscal watchdog, during the Conservative Party’s leadership campaign.

“They also spent the summer brutally undermining the independence of the Bank of England and of the OBR, making a lot of noise saying that the Bank of England’s mandate was not fit for purpose and that the government should have a lot more say in how things are done,” he said. “That was very useless.”

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