The Bank of England has launched a defence of its actions during the financial crisis as it claimed UK household income is nearly £9,000 better off thanks to its efforts to boost the economy.
In a speech at the University of Melbourne in Australia, the Bank’s chief economist Andy Haldane said the average family has benefited to the tune of around £1,500 a year each from the Monetary Policy Committee’s moves to slash rates and support growth since 2008.
Just 4% of households are £500 or more worse off, according to the Bank’s most detailed yet analysis of the impact of record low interest rates and other policy actions launched in the wake of the financial crisis.
It follows criticism that the Bank has contributed to the wealth inequality in the UK, making the rich richer and poor poorer and disproportionately hitting pensioners who have seen their savings decimated by rock bottom interest rates.
Since the credit crunch in 2007 and full-blown financial crisis and recession that followed, the Bank cut rates from 5.5% to 0.5% between February 2008 and March 2009 and injected £435 billion into the economy through quantitative easing.
There was also further action taken after the Brexit vote, although this has not been taken into account in the Bank’s figures.
But Mr Haldane - a member of the nine-strong committee - insisted the Bank’s policies have not worsened wealth inequality and said without its actions, unemployment would be higher and growth lower.
He said the Bank should publish a personal “monetary scorecard” to illustrate the impact of its policies and help rebuild the lack of trust and understanding in economics.
“The average household has gained in income terms by around £1,500 each year, or close to £9,000 cumulatively, from the MPC’s monetary loosening.
“Put differently, the average household would have been around 5% worse off each year had monetary policy not been loosened in response to the financial crisis.”
He added that the impact on net wealth was even larger - with the average household benefiting by almost £90,000 thanks to higher house prices, stock and share increases and pension fund gains.
“The MPC’s monetary loosening added around £260 per year to the average household’s net interest income, £1,200 to their labour income and £14,000 to their net wealth,” he added.
“The material loosening of UK monetary policy after 2007 has had a significantly positive effect on employment, income and wealth, without which average living standards in the UK would be materially lower.”