Inflation ‘not down to QE’

Those struggling to get debt free because of the impact of inflation cannot blame the Bank of England’s quantitative easing (QE) programme, a financial expert has said.

Independent financial advisor and managing director at Invest Southwest Dave Penny said the programme of asset purchases – effectively creating new money – has not caused the recent surge in the cost of living.

He explained: “We are suffering because of the weak pound and the exorbitant cost of food and commodities – oil and gas in particular.

“The exchange rate makes anything imported expensive and the food/commodities factor affects virtually everything that is important to feeding, heating and transporting ourselves and our families.”

In addition to this, the government’s tax increases and spending cuts have a deflationary effect on the economy.

Mr Penny said that with “external” factors playing such a role in inflation, consumers should not assume the new £75 billion round of QE will raise prices further.

The Bank undertook its first round of QE in 2009, having reduced the base rate to 0.5 per cent, meaning they needed a new tool for increasing the money supply.

Following that programme, which eventually reached £200 billion, there was no extension until this month.

Announcing the measure, the Monetary Policy Committee said it was doing so in the expectation that inflationary pressures will drop off rapidly, with the possibility that a downturn in the economy could also push prices down and lead to the Consumer Prices Index rate undershooting its two per cent target in the medium term.

By James Francis