The Bank has been under attack for months from pensioner groups who say the £375bn of money printing has triggered a \”death spiral\” in pensions, by slashing income from annuity rates.
However, a study by the Bank found that the effect of QE on annuities had been \”broadly neutral\”. At the same time, though, it boosted household financial wealth in the UK by £600bn, with the bulk of the gain going to the 15m people aged 55 and over – in particular the richest 5pc, who own 40pc of households\’ financial assets.
Sounds most odd indeed. And then we get to the sleight of hand.
QE has helped boost share prices by 20pc, it said, but the recovery has not been enough to make up the 50pc falls in 2008 and 2009. The Bank conceded that monetary policy will \”unavoidably have distributional implications\”, but that the big impact has been through cutting interest rates to a record low of 0.5pc, rather than QE.
Well, maybe not sleight of hand. But the trick if you like. For it is true but still….
Yes, pensioners have been made worse off by low annuity rates and those have been caused by low interest rates (for much of an annuity now has to be, thanks to G Brown, backed up by gilts) but that has been caused by what we did over here with this hand, not the QE that we did over there with that hand.
Quite true but not quite what people have meant.
I\’ll leave it to others to work out what gilts and thus annuity rates would be without the BoE buying up most of the gilts market through QE. I guess, without having the info, that it is the low base rate which has had more of an effect than the QE.