QE programme not to blame for housing crisis, Bank's chief economist says

The Bank of England's quantitative easing (QE) programme is not to blame for Britain's housing crisis, its chief economist has said, pointing the finger instead at a lack of housebuilding.

Andy Haldane pushed back at MPs who suggested the £435 billion Government bond buying programme was feeding into a national housing bubble and increasing inequality by disproportionately benefiting homeowners.

He admitted that QE has effectively increased asset prices, but said limited housing stock has been the main driver of unaffordable home prices.

"The reason we have seen - not just over recent years but over the course of several decades - a rise in the price of houses relative to people's incomes, has not been unrelated... to monetary policy, (but) is fundamentally rooted in a supply side problem.

"We can do a little to moderate or to boost the demand in the economy including the demand for housing, but ultimately we cannot influence the supply of housing out there, and it's the shortage in that that's caused the secular rise in house prices."

Mr Haldane was facing questions from MPs during a Treasury Select Committee grilling alongside Governor Mark Carney and rate-setters Ian McCafferty and Gertjan Vlieghe over the Bank's economic forecasts and inflation report. 

His comments followed a speech in December, in which he said Britain's poorest regions would be worse off if the Bank had not cut interest rates or introduced its money printing scheme following the financial crisis.

Without looser monetary policy, all of the UK regions would have experienced a contraction in gross domestic product, averaging 7% - or £1,600 in lost income - per person.

In reaction to the financial crisis, the Bank lowered interest rates from 5% to 0.5% between September 2008 and March 2009, and embarked on a £375 billion QE programme. 

It later ramped up its QE programme by £60 billion to £435 billion and cut interest rates to a record low of 0.25% last August as part of its post-Brexit stimulus package.

The move drew criticism from Prime Minister Theresa May, who used a speech at the Conservative Party conference in October to say that the Bank had disproportionately hurt savers while benefiting the asset-rich.

Mr Haldane defended the decisions of the Monetary Policy Committee.

He said: "Has a significant boost to asset prices, and in that to house prices, been generated by our actions? Yes it has. Have the effects of that been felt equally across the economy, across regions, across households? No they haven't.

"Does that mean though that people have been at all disadvantaged in absolute terms, by our actions? I think there the evidence has been strongly to contrary."

Read Full Story