Today ‘s Bank of England meeting should herald the start of the somewhat mystical practice known as “Quantitative Easing”. This prospect of printing money has prompted panicked headlines about Zimbabwean- style inflation. But the process itself does not necessarily spell disaster.
Normally the Bank manages inflation and activity indirectly, through interest rates. Lower rates encourage more spending and less saving, and higher inflation.
But in the current environment, even near zero interest rates are not enough to fight deflation, so unorthodox measures are needed. The Bank of England is going to try and increase the supply of credit directly, by buying up corporate bonds from financial institutions. To cut a long story short, this allows the banks to lend more (because they have more free cash), and reduces the cost of borrowing for business.
In principle, such Quantitative Easing is perfectly reasonable.
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