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Explain how the Bank of England tries to manage inflation and discuss whether the Quantitative Easing Programme may cause higher - Essay Example

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INTRODUCTION The banking arena is undergoing financial turmoil. All the institutions have failed to predict the financial crisis which has disrupted the monetary plans and has resulted in an epic failure of the economy. The Bank of England is the central bank of England and it is the responsible institution for assuring the free flowing of the money throughout the economy…
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Explain how the Bank of England tries to manage inflation and discuss whether the Quantitative Easing Programme may cause higher
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Download file to see previous pages The rate of inflation of the economy is jumping high. Financial analysts quote this rate of inflation as an all time high. The Bank has constantly failed to maintain the rate of inflation which has been prescribed by the government (Dimsdale, 2009). The Bank may blame the cause of the increasing inflation on external factors, but the problem mainly arose because to deal with this situation the Bank started printing money. The printing of money was not backed by gold reserves held by the Bank. Apart from this the quantity of Bank notes printed was in a very large amount (IEA, 2013). The bank is of the view that it has done the right thing. By doing this the bank has breached the government instructions of maintaining a 2% inflation rate but has successfully managed to maintain an annual rate of 5-7%. The Bank claims that this policy will ease of the debt payment. EXPLAINING THE PERSPECTIVE OF THE BANK OF ENGLAND The argument of the Bank of its actions can not be catered by the common rational of an individual. This is because no rational economy would take such an action. Printing so many currency notes will prove to be a hole in the economy. Printing extra notes will always result in more inflation then before. The rise in the inflation rate will prove to be beneficial for a few of the citizens. The rise in the inflation rate will impact the individuals as an additional tax implemented on them. The individuals will feel a prominent squeeze in the prices when paying of the utility bills or consumable goods. The government has eased the individual by implementing several tax cuts by decreasing costs and fuel prices, etc (Bell, Martyn, & Stanton, 2012). The complete economy is facing a problem of rising inflation. This is causing a problem because there are financial crisis rising due to the upcoming recession. The economy needs to deal with the situations accordingly. If it fails to do so then the people of that economy would be facing huge problems. This is the reason why it has become necessary for the economy to use quantitative easing. This will raise the flow of funds within the society. By taking these actions the economy can survive the effects of recession (Anderson, Gascon, & Liu, 2010). The result of quantitative easing will be rising amounts of inflation and hence devaluing the real value of the currency. This action taken by the Bank of England will raise the inflation of the country due to the devaluation of the currency. The set of standards of the government are not being followed appropriately, in this case, and for this reason the economy has a low annual inflation rate but the instant rate of inflation is high. The debt repayment of the economy can also be done easily to reduce the debt of the economy. Quantitative ease is the process which is used to manage and reduce the debt instantly. The rationale behind this action will ensure that the economy will become successful in eliminating the debt but the currency will devalue resulting in a higher inflation rate (Breedon, Chadha, & Waters, 2012; Cobham & Kang, 2011). Any central bank which does not want inflation to occur will not use the qualitative pricing technique to cover up with the shortage of the funds. The usage of the printing of currency notes will surely result in a higher inflation rate (de Rezende, 2011). QUANTITATIVE EASING When the standard ...Download file to see next pagesRead More
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