As with changes in interest rates, it will take some time before we see the impact of our purchases feeding through into higher aggregate spending and inflation. However, there are some encouraging signs that the medicine is working. The growth of underlying broad money has picked up in recent months, especially relative to the weak growth rates we might otherwise have seen. Interest rates have fallen. Corporate bond spreads have declined substantially. And the amount of finance raised by companies in bond and equity markets is at record levels. Not all of these developments can be attributed solely to our actions. But I have no doubt that asset purchases have played an important role. At our policy meeting in August, the Monetary Policy Committee voted to maintain Bank Rate at 0.5% and to increase the scale of our asset purchase programme to £ billion. That level of Bank Rate and scale of asset purchases were maintained at the MPC meeting earlier this month. You may have notice that at our meeting in August there was a split vote amongst the Committee. A majority of the Committee – including myself – voted to increase the asset purchase programme to £ billion, whereas a minority preferred a larger expansion to £ billion. It is important not to make too much of this difference; all members were of the view that a further degree of monetary stimulus was needed to meet the inflation target.
A natural place to start would be with the “consumption boom”, which is often presumed to have preceded the bust. But in fact there was no such boom. Between the turn of this century and the onset of the financial crisis, consumer spending increased no faster than it had done, on average, over the past 40 years. 1 Moreover, the fraction of our national output consumed by households did not increase. The kernel of truth in the consumption boom story is that changes in the distribution of our national income meant that this stable growth of aggregate consumer spending was associated with a sharp decline in the household savings ratio. The proportion of income that households set aside fell from close to 10% in 1997 to a little over 2% ten years later. Although there was no spending boom, households were making less provision for the future. Where did all the debt go? But how does the absence of a spending boom fit with the headlines about the rise in debt. The big increase in household debt over the past decade is certainly not a myth. Household  1  Consumption growth was, however, unusually strong in the period 1996-2000. My colleague Andrew Sentance has stressed the importance of analysing trends in consumption over longer periods (eg Sentance 2007). 2  BIS Review 114/2009  debt as a proportion of income increased from 100% to 165% in the 10 years to 2007.