What is quantitative easing?

Link to the article: Channel 4


Last Modified: 06 Mar 2009
By: Channel 4 News

As the Bank of England considers embarking on quantitative easing, Channel 4 News online explains what it means.

Q: What is quantitative easing?
A: QE aims to increase the amount of money in the economy. The Bank of England (BoE) is doing this by buying up assets, in particular commercial bonds. Since the onset of the credit crunch, banks worried about the strength of their finances have tightened up lending dramatically, so this is an attempt to kick-start the process.

At its most simple level, this new money will be used to buy debts - for example from banks - so they've in theory more money to lend again, or to tidy up their balance sheet. The principle aim of this experiment is to lower interest rates for consumers and companies.