Quantitative tightening, high interest rates, and no growth, and all because the Bank of England's policies are damaging households, businesses, and the whole UK economy. Is it time to bring them under control?
This is the audio version:
This is the transcript:
We have a real problem in the UK. Our interest rates are far too high.
You know that if you've got a mortgage.
You know that if you've got a credit card.
You know that if you've got a car loan, and if you're a business, you know that because your overdraft is costing too much.
The consequence is very clear, and it's very dangerous because what that is doing is reducing incomes in the UK, which means that people don't have money to spend, so the economy is stagnating. And it means that businesses in the UK are paying too much interest, so they can't afford to invest in our economy, and as a consequence, we are not getting growth.
And that high interest rate is not by chance. It is the result of deliberate policy by the Bank of England, and they are backing that policy up with something which has a technical name, which is pretty hard to say to a video camera, which is 'Quantitative Tightening'. I think I got it right, but there are a mighty lot of Ts in there.
Quantitative tightening, or QT for short, is the process undertaken by the Bank of England, without any need, to sell off the bonds that it bought during the quantitative easing eras, which happened after the 2008 global financial crisis and during the COVID era.
Those bonds didn't need to be sold, but they are being sold back into financial markets by the Bank of England to keep interest rates high. The point is this. Quantitative tightening reduces the demand for government bonds by effectively oversupplying those bonds.
Hundreds of billions of pounds worth of government bonds have been sold by the Bank of England into financial markets, and not a single penny of that money has been used to fund anything that the government does, which does prove that bond sales and government expenditure are not in any way related. But by forcing the price of government bonds down by effectively oversupplying the market with bonds, it forces the effective interest rate on government borrowing up, and that affects the long-term borrowing rate of everybody else.
This hurts investment. It hurts jobs, and it hurts household finances.
This is a policy of deliberate austerity being undertaken by the Bank of England, which is not being announced by the government, but which is deeply regressive because it hits the lowest households who have most borrowings the most, and those households with the most borrowing are those with the lowest income and children most often.
What we are now seeing is a reaction from the City of London. Some financial managers are actually saying, "Stop this QT process."
They are saying that they don't want to buy any more bonds dumped on them by the Bank of England.
They're saying the market is saturated.
They are saying that the Bank of England is actually destabilising the market in government bonds.
They are saying that this political manoeuvre by the Bank isn't necessary, and they're saying the interest rate is too high because they can see the consequences for the real economy.
They can see that people do not have enough money to spend, as a result, and they can see that people aren't investing.
They can see that this is austerity by stealth, and the City of London doesn't like that because it, like you and me, does eventually want a degree of prosperity in everything that's going on because they make money from that, and they aren't from quantitative tightening.
So what does this mean?
First of all, it means that the era of central bank independence should come to an end. If central bank independence means that we have the Bank of England running a policy of austerity, which is positively harming the well being of people in this country by making political choices that are designed to harm those on lower incomes whilst benefiting those on higher incomes, it's era of independent policy management has to end.
Chancellors have to be accountable for what's happening in this economy, and they're not because of what is going on here. We have to have the government take responsibility.
We have to end quantitative tightening.
We have to cut interest rates.
These are preconditions of rebuilding the economy.
We cannot have the Bank of England wrecking what we need, and yet that's what it's doing.
And that has to end.
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Most of Gordon Brown’s instincts appeared to be right. He had so many battles to fight. Like so many others, I wished him well and so we were surprised but not outraged at his declaring that the BofE was to be ‘independent’.
He was wrong on this. We were wrong to go along with it. Democracy requires that government takes full responsibility for interest rates.
And for how long do government funds need to be paid as ‘interest’ on cash created by the Quantitative Easing process?
Thanks Richard. Not enough people are saying this.
The finance sector has, in many ways, become a parasite. Parasites are often fatal to the host.
You argue persuasively that the Bank of England’s combination of high base rates and unnecessary quantitative-tightening is acting as “austerity by stealth”, squeezing households, throttling business investment and choking growth . One practical way to turn that analysis into visible public pressure is to mobilise savers themselves. So how about this:-
Ethical-saver pledge – savers who do not need above-inflation returns place their money only in accounts that track CPI/RPI at most.
Earmarked lending – participating institutions (building societies, credit unions, ethical banks) commit the cheaper funding margin to lower-rate mortgages for first-time buyers and other socially useful lending.
Campaign hook – the pledge is promoted as part of a broader call to end QT, cut the base rate and bring the Bank’s mandate back under democratic control.
Why it matters
1. Breaks the “savers v borrowers” narrative. By showing that many savers are willing to forgo windfall interest, it undercuts the political cover for keeping rates high.
2. Focuses on real-economy goals. Redirecting the interest margin straight into affordable housing tackles one of the most immediate channels through which current policy depresses demand and growth .
3. Builds an inter-generational coalition. Older, asset-rich savers publicly backing younger borrowers gives the wider movement moral force and media resonance.
4. Targets institutions we can influence now. Mutuals and credit unions do not rely on wholesale markets: if enough members demand inflation-matching accounts, they can pass the benefit on quickly.
5. Signals broader public dissent. Visible uptake of the pledge becomes a barometer of dissatisfaction with the Bank’s stance, reinforcing your call for the Chancellor to end QT and cut rates.
Bottom line
While the pledge alone won’t dictate monetary policy, it turns critique into action, puts real money behind a social alternative and adds a fresh, voter-friendly dimension to the campaign to stop the Bank of England from “wrecking growth”.
What do you think? How could we get this started?
My action has been to support a new credit union this week by pledging membership and a deposit.
I was invited to be a director. I admit, I just do not have the time.
Arguably, the BoE is under control – it is doing as it is told by those who are really in control of the country – adding to pressures already created by government such as austerity.
This is the real ‘project fear’ being rolled out over the country right now and its aim is to hold the Neo-lib line. I find it hard to believe that it is otherwise than co-ordinated and deliberate, as well as being undemocratic.
This country has always trod a fine line between a parliamentary democracy and a feudal society, with the latter always having a better hand to play if they felt under threat (the better hand being their wealth). So effectively, that line has been crossed and what you and I are now living in is a wealth driven coup I’m afraid.
I have no idea as to when this will end, and how it will be decided that we have ‘learnt our lesson’.
If the government doesn’t need to ” borrow” as it can be effectively self funded then surely it can dictate the interest rate that it is prepared to offer the primary market and this is purely based on BoE bank rate (and nothing to do with bond yields in the secondary market). So why does the yield on bonds sold on the secondary market effect government borrowing costs?
Because it chooses to let it do so.
That, literally, is it.
You are looking for an obscure explanation when this it is: it chooses to price at what the market dictates when it need not do so. That is the whole problem I keep pointing out.
Thank you so well explained so ordinary folk can understand the hidden machinations.
Wondering what did they spend the money on, (having sold the bonds)?
Cancelling base money in circulation. That is it. They did not spend it on anything. They wanted to destroy money they had previously created.
I sometimes check on BBC complaints (sad, I know), and your post reminded me that today I saw this one:
Currently: Of Budgets and Bond Markets, Radio 4, 20 April 2025
19 June 2025
Complaint
A listener complained about the programme’s description of how the UK bond market works, claiming it was “wholly inaccurate” to suggest it was a method of funding the UK Government. The ECU [Executive Complaints Unit] considered the complaint against the standards for accuracy set out in the BBC Editorial Guidelines.
Outcome
The programme set out to explain “how and why the people who lend governments money, the bond markets, can destabilise a government’s finances” and cited the mini-budget presented by the then Chancellor Kwasi Kwarteng in 2022. The presenter explained that governments, such as in the UK, issue bonds as a way to borrow money from lenders in return for repaying the money, plus interest, at a later date. The programme included contributions from a range of experts, all of whom offered the traditional view that governments issue bonds to borrow money when its spending exceeds its income from taxes and other non-tax revenue sources. Whilst the ECU accepted the issue of UK Government bonds could be understood as a financial asset swap operation, it considered a programme of this kind, aimed at a general audience, was entitled to give due weight to the widely accepted understanding of why governments issue bonds.
Not Upheld
TLDR version: “The programme included contributions from a range of experts, all of whom offered the traditional view… a programme of this kind, aimed at a general audience, was entitled to give due weight to the widely accepted understanding of why governments issue bonds.”
Thanks
I agree with you Richard.
The BOE reason for doing QT as defined on their website is to allow future QE!! Not to impact inflation rates or inflation. As if you could do it for one reason without having other effects.
See below for quotes.
https://www.bankofengland.co.uk/monetary-policy/quantitative-easing
The process of ‘unwinding’ QE is sometimes called ‘quantitative tightening’, or QT. This can be done by not buying other bonds when the bonds we hold mature, by actively selling bonds to investors, or a combination of the two.
Unlike QE – which is used to reduce interest rates and therefore support inflation – the aim of QT is not to affect interest rates or inflation. Instead, the aim is to ensure that it is possible to undertake QE again in future, should that be needed to achieve the inflation target.
That is a truly terrible reason…not least because it is utterly untrue.
KenM: see the “What are the justifications for QT?” answer here:
https://gezwinstanley.wordpress.com/2024/10/28/infrequently-asked-questions-about-quantitative-tightening-that-you-were-never-even-meant-to-ask/
Excellent leader in the Guardian this morning :
https://www.theguardian.com/commentisfree/2025/jun/29/labour-raising-taxes-austerity-amnesia-keir-starmer-rachel-reeves?CMP=Share_AndroidApp_Other
Agreed
Thanks Richard: very good idea and I’ve done mine, took about 30 mins in total with a bit of tailoring of the prompt and results (not least to allow for my MP being Conservative).
The really depressing thing about this is that once this QT process happens, with (as you have correctly argued) “unreal” debt the public sector has bought, and now owes to itself, being sold back and again becoming “real” debt (meaning straining the limits of your borrowing, increasing the interest rates you are likely to have to pay and having to pay that interest to third parties) it, as argued here (https://gezwinstanley.wordpress.com/2024/10/28/infrequently-asked-questions-about-quantitative-tightening-that-you-were-never-even-meant-to-ask/ ), becomes very difficult to reverse. Short of needing to prop up bond prices, as during the “Truss Crash” (which was, of course, partly Truss, partly the Bank of England’s QT, ironically) or another period of threatened deflation, no one is going to reverse the QT by doing some more QE.
So are there any latest figure available anywhere please? How much QT has the Bank of England done recently, how much more it is planning, and how much public sector debt does it still own?
Vital that people realize this isn’t an “abstract” issue. Terrifyingly and tragically, time is ticking to stop this entirely avoidable exacerbation of fiscal austerity, with all its likely impacts, including mass suffering and the rise of the far right.
Richard, regarding the high BoE interest rate:
Is the BoE trying to attract more foreign Capital into the UK and for that reason it tries to track Federal Reserve rates by keeping rates higher than the domestic economy requires?
Is QT the Bank’s way of refuting the charge levelled by some post GFC that it was essentially funding govt and therefore clearly not independent?
Has the BoE now effectively escaped nationalisation, by pursuing through higher Interest rates and QT what you rightly call austerity thus making it enormously difficult for govt to retake control of the interest rate decisions and more generally to make changes to the performance of the UK economy?
a) Who knows? Maybe.
b) Very likely – pure ego, plus dogma, in other words
c) It is nationalised. And let’s not pretend the government does not go along with what it is doing. They are outsourcing part of austerity to it.