In June the Daily Mail ran a story that up to half of the fresh cash produced by the Bank of England under quantitative easing was going abroad. Blowing away all the tabloid froth, the story was that BoE statistics showed that half of the purchases of gilts in March and April were from foreign investors, not British institutions.
But because it was the Daily Mail, we all forgot about it and assumed that more cash would eventually find its way into British banks. It seems not because we now have an analysis from the more authoritative Michael Saunders of Citigroup, who tells us that although UK institutional investment rose to £23.5bn in Q2, net purchases of gilts by UK institutional investors in Q2 were near zero, reflecting the lack of net gilt supply caused by the BoE’s huge gilt-buying programme.
Net purchases of UK corporate securities by UK institutional investors rose to £4.3bn in Q2 from £3.2bn in Q1, but the biggest shift was into overseas assets, with UK institutional investors’ net purchases of overseas assets reaching £13.4bn in Q2 from £2.0bn in Q1 and an average of £2.2bn per quarter in 2008.
So there you have it. The Bank of England's Quantitative Easing programme may give a small boost to UK business, but most of the stimulus is flowing overseas. At least the outflow of cash will weaken sterling and promote UK exports. Shame then that we have very little industry and no credit capacity to finance expansion.