Our views

BoE quantitative easing a missed opportunity


Jonathan Platt, Head of Fixed Income

14 September 2016

We are disappointed to see bonds of sectors such as social housing not making the cut. Many firms which play a crucial role in the UK economy and would seem to meet all the listed criteria specified by the Bank have been overlooked.
 
Meanwhile, this selection process could mean that some firms, which only make a marginal contribution to the UK, have their borrowing costs artificially lowered.
 
Whilst we acknowledge that the purpose of quantitative easing is to stimulate the overall economy, the Bank of England has missed an opportunity to reduce the borrowing costs in some vital sectors. There is no guarantee that the new bonds issued will lead to further investment in the UK economy. Global corporates included in this QE programme could simply use this as a chance to issue cheap, low yielding credit to buy back their own shares. To address this concern, we believe that companies that have recently undertaken or plan to issue debt solely to fund share buybacks should be excluded from the QE programme.

This continued distortion of bond markets will only lead to poorer outcomes for the British public.

The value of investments and the income from them is not guaranteed and may go down as well as up and investors may not get back the amount originally invested. The views expressed are the author’s own and do not constitute investment advice.