Quantitative easing

A form of monetary policy used by a central bank to increase the money supply in a bid to stimulate the economy. In the UK, the Bank of England would buy assets such as government and corporate bonds using newly created money. The institutions issuing the bonds therefore get a cash injection which they in turn can lend to other companies and individuals within the economy to boost activity levels. However, there is a danger that banks could simply keep the additional money to boost their capital reserves or conversely, of hyperinflation if the money suddenly over-stimulates demand in the economy. Quantitative easing is a radical step which is taken when other measures such as lowering interest rates fail to reinvigorate the economy.

This definition is for general information purposes only