What is quantitative easing?
Quantitative easing, or QE, is when a central bank creates new money electronically to buy financial assets, mainly government bonds. The aim is to push down long-term interest rates and support spending. The Bank of England used QE after the 2008 crisis and during Covid, buying £895 billion of bonds in total.
Normally the Bank of England steers the economy by changing Bank Rate. When rates are already close to zero, it cannot cut much further, so it may use QE instead. It buys gilts from investors such as pension funds, paying with newly created central bank money. This raises gilt prices and lowers the interest rates on them. Lower long-term rates make mortgages and business loans cheaper. QE also helped the government borrow cheaply at times of crisis. Since 2022 the Bank has been doing the reverse, called quantitative tightening (QT). It is shrinking its holdings by letting bonds mature and by selling some. Because the Bank bought many gilts when prices were high, losses on QT are covered by the Treasury.
Some on the left argue QE inflated the value of homes and shares, helping the wealthy most. Some call for 'people's QE' to fund investment.
Some on the right argue QE fuelled later inflation and made government borrowing too easy, and want it used sparingly.
Britain is split. Now you decide.
In Population Decides scenarios, markets are calmer about your borrowing when the central bank is buying gilts.
Play Population Decides freeCommon questions
Is QE the same as printing money?
It is similar, but the money is created electronically and used to buy bonds rather than handed out. It is meant to be reversed later.
What is quantitative tightening?
QT is the opposite of QE. The Bank shrinks its bond holdings, which takes money back out of the system.