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QE is 'now a painkiller not an antibiotic'
Quantitative easing is now a "painkiller" which does not necessarily cure economic ills, but makes them easier to live with, a senior economist has told MPs.

Stephen King, chief global economist at HSBC, told the Treasury Select Committee during a hearing on QE that the policy had been an "antibiotic", but it was "now more of a painkiller". "It doesn't actually cure the problem, but makes it easier to live with," he said.

Politicians on the committee are conducting an inquiry into QE; its effectiveness; and how effective it would be if the programme were to be further extended in the future.

QE was designed to help Britain out of its economic abyss, but questions are being asked over its impact. Sir Mervyn King, the Bank's governor has recently voted for £25bn more QE - he was overruled - but has said that monetary stimulus is "running up an ever steeper hill" as "larger and larger doses are required".

Discussing the costs of QE, Mr King of HSBC told the committee on Tuesday that it can put a squeeze on real wages, potentially having a negative effect on the economy. He added that another "unexpected consequence" of QE was a sustained increase in commodity prices.

Although Mr King said there were a series of risks associated with QE, he added that had it not been for that policy and other related measures adopted in 2009, we could "be facing in the Western World a significantly worse outcome than the one we've actually been through".

That was echoed by Gavyn Davies, former chairman of the BBC and now chairman of Fulcrum Asset Management, who was a government economic advisor during the 1970s. He told MPs that risks around QE need to be monitored, but he added: "They do not constitute a sufficiently large risk to reverse the QE programme given the way the economy is behaving".

However, he told the committee that he would be "nervous about having yet more QE until we get inflation expectations back down".

He added there was "limited point" in continuing to buy 10-year bonds, but would advocate expanding the Government's Funding for Lending scheme, which is designed to spur cheaper loans to home owners and businesses.

Discussing alternative stimulus measures, Mr Davies said he would recommend extending the FLS and "sorting out" the banking sector. Mr King echoed that, saying he would offer more help to small and medium sized enterprises through the FLS.

Economics professor, Roger Farmer, who also appeared in front of the committee, said he would set up a sovereign wealth fund, paid for by issuing debt.

Since QE was launched in March 2009, Bank officials have insisted that unwinding the scheme will be relatively straightforward and profitable. But, the Bank has now admitted that there are considerable exit risks.

Mr King said that there was a "long way ahead" before exiting QE while Mr Davies said an exit could be "politically tricky" for central banks.

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