As you know, the objective of the asset purchase programme is to increase the growth of nominal spending to a rate consistent with meeting the inflation target. There are a number of channels through which the asset purchases should help to stimulate demand. Purchases of gilts are likely to cause investors to reallocate their portfolios into other assets, including corporate bonds and equities. This increase in demand for corporate assets should help to reduce borrowing costs faced by firms. Moreover, expansion in the supply of money and liquidity may in itself encourage greater levels of lending and borrowing. Not least, bank deposits are likely to increase as a result of our asset purchases, providing banks with a ready source of funding. Purchases of private sector debt should aid the functioning of corporate credit markets and so improve the availability of credit via these markets. And the programme of asset purchases should help to demonstrate the Committee’s ability and willingness to do whatever it takes to hit the inflation target and so help to ensure that inflation expectations remained firmly anchored. The Bank has so far purchased a little over £ of assets and is on track to have purchased £ of assets by the end of July. It is still early days in terms of judging the ultimate success of the programme in stimulating nominal spending, but initial indications remain encouraging. The growth rate of underlying broad money has picked up in recent months.
Spencer Dale: Inflation targeting – learning the lessons from the financial crisis Speech by Mr Spencer Dale, Executive Director and Chief Economist of the Bank of England, at the Society of Business Economists’ Annual Conference, London, 23 June 2009. I would like to thank Rohan Churm, Jens Larsen and Rob Wood for their considerable help in preparing these remarks. The views expressed are my own and do not necessarily reflect those of other members of the Monetary Policy Committee. *  *  *  We are in the midst of a deep recession. Unlike recessions of the late twentieth century, this twenty-first century version is not the result of deliberate, but belated, attempts to slow the expansion of money spending in order to bring down inflation from very high levels. Inflation is close to the Government’s 2% target. This recession has at its heart a crisis in the banking system; a crisis that has strangled the supply of credit and undermined public confidence. For the first time in fifty years, the total amount of money spent in our economy during the first quarter of this year was lower than a year earlier. The era of “Great Stability” is over. The Great Stability followed hot on the heels of the introduction of the inflation targeting framework for monetary policy. Some attributed part of the improvement in economic performance to better policymaking. The abrupt end to that stability has, in turn, led the inflation targeting framework to be questioned.