ECB’s quantitative easing: What does it mean for consumers?

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The €1 trillion scheme, the first such measure in the central bank’s history, was announced in January and will see the ECB buy €60 billion (£46 billion) worth of government bonds a month until 2016.

It will begin on March 9, ECB President Mario Draghi told a news conference after a meeting of the bank’s policymakers in Cyprus.

The bank hopes that in time the stimulus measure will boost growth and lift inflation, but there will be effects on individual consumers too.

Here’s a few ways that ECB QE could play out for us in Britain:

Cheaper holidays

All that new cash in Europe will drive down the price of the Euro, meaning sterling may be worth a whole lot more.

This is great news for European holidaymakers who should find their spending money goes a lot further.

Goldman Sachs said last year that quantitative easing could mean the euro is worth 65p compared to the 72p it is worth today.

Shopping for less

A cheaper euro will also make goods manufactured in Europe cheaper in the UK – so household names imported from Europe like Renault, Nestle, Hellman’s and Dove could get cheaper.

While that sounds great in the short term, it does have risks. Bargain hunters, spotting the trend for goods to get cheaper, might hold off from adding things to their basket in the hope that prices will fall again.

That could send the economy backwards by creating deflation.

Prices rise over time

Because QE keeps interest rates low savings will also grow slowly. QE is designed to make inflation – or the rate at which prices rise – pick up again.

The value of debt, which is fixed, would therefore seem lower.

Some commentators think QE is a tactic to reduce the burden of European sovereign debt, rather than to put more cash in the pocket of regular consumers.

The rich get richer

Since 2009, the Bank of England has used QE to try and revive the British economy.

But evidence from the Office of National Statistics showed that the bank’s purchase of a third, or £375 billion-worth, of government bonds (or gilts) actually made the richest 10% richer by hundreds of thousands of pounds.

According to the Bank of England, QE in the UK delivered a massive boost to the wealth of the most prosperous 10% of households in Britain while delivering relatively scant returns for the poorest.

Source Article from http://www.standard.co.uk/business/business-news/ecb-quantitative-easing-what-does-it-mean-for-consumers-10088301.html

March 5, 2015 |
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