The Bank Of England Is Using Quantitative Tightening To Push Up Interest Rates

30th May 2024

The Bank of England's vast sale of government bonds is causing a shortage of cash in corners of the money markets and may need to end, investors have warned.

Over the past two years, the BoE has shrunk its balance sheet from nearly £1tn to about £760bn largely by reducing its holdings of government debt it bought under numerous rounds of quantitative easing stimulus.

As I have noted many times here, quantitative tightening happens to reduce the UK's government-created money supply.

Supposedly, this reduces the rate of inflation. There is not the slightest shred of evidence that this has worked in the UK, where our inflation rate has remained above that of countries and the EU, that have not used the aggressive form of QT that the Bank of England has.

The other reason for QT is to keep interest rates up. By reducing the money supply the aim is to keep up the price of using it. And as the FT notes, this is exactly what has happened.

Read the full article by Richard Murphy HERE