The Bank of England Monetary Policy Committee sat and cogitated yesterday, and did nothing.

In the process, they opened a can of worms. The pound shot up on the news, so did yields on UK government bonds, creating doubts over the government’s ability to raise money in the future.

And as ever, opinion on what it all means was divided right down the middle.

Changes in interest rates are so very 2008. Interest rates are half a per cent. It may not seem like it. If you go to your bank asking for a mortgage you won’t get half a per cent. But that is the rate they are supposed to be.

So what does a central bank do when the markets won’t settle on the interest rates it wants them to settle on? Answer, print more money.

Printing money is the new thing: so very 2009.

The Bank of England has got kind permission from the chancellor to create £150bn in the form of quantitative easing. But so far, the Old Lady of Threadneedle Street has only revealed plans to print £125bn worth. So it has got scope to print more.

Later this month it seems all £125bn of this money will have found its home. And for that reason, some thought the Bank of E would announce plans for the rest, the remaining £25bn.

But it didn’t.

The currency markets liked that, and up went the pound.

Government bonds, on the other hand, did badly. The yield on gilts rose by 19 basis points, one of the sharpest rises of the year.

Some say, that’s it then, the Bank of England is done with quantitative easing. Others, Capital Economics, for example, say it is merely pausing for breath.

Some fret. If the yield on bonds goes up while the government is still quantitative easing a little, what will it be like when things go into reverse, and it tries to hoover all that spare money back up?

They warn that yesterday’s movement on the money markets is just a sign of what’s to come, and that when things go into reverse, interest rates on the money markets will go shooting up, hitting taxpayers, because the cost of repaying government debt will soar, hitting mortgage holders and hitting business.

The big snag is that, despite all this new money, banks are not lending it. At least, they are not lending at interest rates that appear to be in any way commensurate with the official bank rate. They are bumping up margins, instead. (Maybe that’s what happens when banks are not allowed to go bust. Better to liquidate, perhaps, and start with a clean sheet.)

Well, we will have to wait until August now. We are sure you can’t wait to see what the Bank of England will do in the next gripping instalment of “easing by quantitative means.”

© Investment & Business News 2013