What is quantitative easing?

Quantitative easing (QE) is a form of monetary policy in which a central bank, such as the Bank of England, purchases government and corporate bonds from the open market to reduce interest rates and increase the money supply.

QE can be implemented when interest rates are near zero and economic growth has stalled to help prevent recession and deflation. Without the ability to lower interest rates further, central banks must strategically increase the supply of money through bond buying.

By buying these bonds, central banks increase the supply of money which in turn can lower the interest charged on borrowing. This provides liquidity to the banking system and enables banks to lend with easier terms, hopefully benefitting households and businesses.

QE was most notably used after the Global Financial Crisis that began in 2008. The Bank of England reacted by reducing the Bank Rate from 5% to 0.5% to help the UK economy recover. However, even with the rate that low, the Bank needed to do more to stimulate spending in the economy so turned to QE.