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New Pressure Group Wants Reformed Bank of England To Stop Creating "Unlimited New Money"

A group of Lords, think tanks and experts are set to launch a new parliamentary group focused on overhauling the Bank of England current powers (Alamy)

5 min read

A group of peers, think tanks and economic experts are set to launch a new parliamentary group focused on pressuring government to overhaul the Bank of England's current powers, including its ability to print money and buy bonds through Quantitative Easing (QE).

Lord Hannan, a Conservative peer since 2021, will host the launch of Honest Money Initiative (HMI) which aims to lobby for reform of Britain’s monetary system. It is supported by Mark Littlewood from the Institute of Economic Affairs and Eamon Butler from the Adam Smith Institute. 

The event in parliament on Monday will include a screening of a documentary produced by free market think tank the Cobden Centre. It is aimed at encouraging MPs to “remove the power of the Bank of England to create unlimited quantities of new money”. 

Former Brexit negotiator Lord Frost, a strong supporter of the HMI campaign, and expected to attend Monday's launch event, said he believed it was time to “change the Bank of England's mandate so we can start to turn the tide".

"The best thing government can do to improve hardworking families' everyday lives is learn to live within its means - just like everyone else has had to. Money printing and a long period of super-low interest rates has been at the root of the country's move leftwards,” he added.

In a letter published in the Telegraph last week, the same group wrote that the Bank of England must stop "creating money out of thin air".

“More money in the system, without more goods and services being produced, leads to rising prices which hurts those on low incomes the most – especially young people and pensioners,” they added.

The UK’s monetary policy is controlled by the Bank of England, which has the power to set interest rates and buy bonds through Quantitative Easing (QE). The UK’s central bank started QE in March 2009 – a year after the financial crisis – to encourage spending in the economy and lower interest rates.

QE is a form of digital money printing which has helped the UK's central bank to buy thousands of Government bonds. This has increased the demand for UK Government bonds and in-turn lowered the interest rates on them.

In turn this made it easier and cheaper for the Government to spend and raise money over the last decade. In addition it was meant to keep interest rates at record lows to encourage consumers borrowing money and spending it in the economy to stimulate growth. 

Ashley Webb, an economist at Capital Economics, said that QE has been a useful tool for the Bank of England in order to stimulate the economy at a time when "interest rates were already very low".

"If the Bank were to lose such powers, it may not be able to respond to future economic shocks as flexibly and as efficiently as it has been able to in the past," he said.

The measure was only meant to be temporary but has continued for 14 years - with the Bank of England having spent £895billion on bonds in that period.

Professor Michael Jacobs, an economist and former adviser to Gordon Brown, told PoliticsHome that QE was used by central banks across the world after the 2008 financial crisis and outlawing it could be considered as a "fringe proposal".

"Quantitative Easing is clearly an option and the idea central banks should not use it would restrict them."

Several Conservative MPs have recently criticised the Bank of England's decision to continue using QE and have blamed it on the UK's recent inflationary problems.

Stephen McPartland, MP for Stevenage, told PoliticsHome that “the Bank of England has helped fuel inflation” by continuing and extending QE.

“They are focused on theoretical economics instead of the facts facing families struggling with the cost of living,” he said.

Prices rose in the UK by 8.7 per cent in May with core inflation increasing from 6.8 per cent to 7.1 per cent. 

After the reported figures were announced the Bank of England announced it would raise rates by half a point to five per cent – the highest since 2008.

Inflation has also been fuelled by the war in Ukraine, which sent gas prices rising, and an increase in trade restrictions between the UK and EU. But the group of experts and economists behind the new HMI group have primarily squared the blame with the Bank of England,

A former cabinet minister said they believed that the UK will be gripped by "never ending inflation" if it does not get a “grip on the money supply”.

“Something needs to be done. It’s got to stop," they told PoliticsHome

"The problem is there have been two shocks to the economy, one being the 2008 crisis and the other being Covid-19. But the continued use of QE is impossible and it’s got to stop and I think it’s important people focus on this.”

A Tory source told PoliticsHome they believed “many of the problems” MPs are attempting to solve – including the Housing bubble and inflation - are “caused by the monetary system”.

“There are a number of intelligent people who have no idea how our monetary system works because they have never thought about it. Inflation would be a hell of a lot less if the BofE had not pumped £800billion into our monetary system,” they said.

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