Tag: QE

Quantitative Easing

Posted on by Rhys Williams

What is Quantitative Easing and Why has it been used?

Quantitative easing is a policy introduced by the Bank of England to pump [to date] £375 billion into the economy. It works by the BofE purchasing government bonds (known as Gilts) off private and institutional investors which increases the price of government bonds, thus lowering the yield* and making it cheaper for the government to borrow. When first used it was seen as a form of unconventional monetary policy and was used because the central tool in a monetarists pocket – the use of interest rates to stimulate demand – was ineffective. [...]

Pension Deficit Falls

Posted on by Rhys Williams

http://www.bbc.co.uk/news/business-20946476

The article above shows the effect that the BoEs Quantitative Easing (QE) policy has had for pension funds. By undertaking QE the yield on government bonds (Guilts) has fallen. This is because the Bank of England purchases Guilts off of financial institutions (banks, insurance firms, pension funds, hedge funds, private investors, equity funds etc) which then go and buy other assets, which may include more Guilts (the reason institutions like buying government debt, despite the yield being so low, is because they are considered very safe, the UK Government currently has an AAA credit rating, and because if necessary it can print money, as it has its own central bank, the risk of it defaulting is considered low). [...]