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To ask Her Majesty’s Government, further to the answer by Lord Newby on 9 July (HL Deb, col 158) regarding the involvement of the Government in decisions to increase the Bank of England's asset purchase scheme, how that answer is consistent with the letter from the Governor of the Bank of England on 5 July 2012 requesting an increase from £325 billion to £375 billion in its programme of asset purchases.
Quantitative easing (QE), or asset purchases financed by the issuance of central bank reserves, is implemented via the Asset Purchase Facility (APF), a subsidiary company of the Bank of England established in January 2009. QE was authorised in March 2009 by the then Chancellor in a published exchange of letters with the Governor of the Bank of England.
Decisions on the scale and speed of QE are those of the independent Monetary Policy Committee (MPC) which has operational responsibility for monetary policy as set out in the Bank of England Act 1998. QE is an additional policy tool to Bank Rate in order to enable the MPC to meet the inflation target in the medium term.
Given that HM Treasury indemnifies the Bank for any losses it makes arising out of the use of the APF, the Chancellor authorises, at the MPC's request, changes in the maximum amount of assets that can be purchased.
The MPC voted for an increase in asset purchases financed by the issuance of central bank reserves at its July 2012 meeting to a total of £375bn.
The Chancellor authorised the MPC to increase the ceiling on the scale of asset purchases through the APF to £375bn, in a letter to the Governor in July 2012. The Chancellor's letter made clear, that monetary policy continues to have a critical role in supporting the economy as the Government delivers on its commitment to fiscal consolidation and that it remains the primary tool for responding to changes in the economic outlook.