QE, zero rates, and a Chinese surprise

It's central bank mania!

It's central bank day, and for once all three reporting banks – the Bank of England, European Central Bank and Bank of China, which for the second month in a row announced its decision after the Bank of England – have done something interesting.

The Bank of England announced, as expected, that it would be increasing its quantitative easing program by a further £50bn. In the accompanying statement, it struck a sombre note:

UK output has barely grown for a year and a half and is estimated to have fallen in both of the past two quarters. The pace of expansion in most of the United Kingdom’s main export markets also appears to have slowed. Business indicators point to a continuation of that weakness in the near term, both at home and abroad. In spite of the progress made at the latest European Council, concerns remain about the indebtedness and competitiveness of several euro-area economies, and that is weighing on confidence here. The correspondingly weaker outlook for UK output growth means that the margin of economic slack is likely to be greater and more persistent.

The new round of asset purchases will also have been encouraged by the consistently falling inflation. Textbook QE raises inflation, and although the economy isn't behaving according to many textbooks these days, the Bank will still have wanted to wait until it was within spitting distance of its mandate before acting.

Minutes later, however, the Bank of China stole some of the shine, by cutting its interest rates for a second month running. It lowered its benchmark interest rate by 0.25 per cent, and also lowered its one-year lending rate by 0.31 per cent.

Business Insider's Sam Ro sums up why that matters:

China's growth rate has been decelerating lately, which had some economists concerned that its economy would land hard. In a hard landing, the unemployment rate picks up and the economy risks sinking all the way into recession. China is the second largest economy in the world. And for most economies, China is also the main source of growth.

Falling interest rates could mean that the Chinese central bank is starting to get edgy.

Finally, an hour ago the ECB announced its monthly move on interest rates. And they went for some unconventional monetary policy! Admittedly, not as unconventional as paying for people's holidays: they lowered the deposit rate to zero per cent (as well as cutting its main refinancing rate to 0.75 per cent and the emergency funds rate to 1.50 per cent). If you park your money with the central bank, they won't give you a penny cent.

Alphaville's Izabella Kaminska explains the reasoning:

A positive deposit rate was the last thing anchoring money market rates to zero — or vague profitability. This is because banks could arbitrage the difference between the rates they received at the ECB and the rates money market funds were able to invest at.

By cutting the deposit rate, the ECB is killing this arbitrage. There will not be any profit associated with taking money from non-banks and parking it at the ECB for a small profit. Non-banks won’t even be able to get zero. This will leave real-rates exposed to further deterioration. The ECB, of course, is hoping that non-banks will choose to channel that money into risky assets instead…

With the deposit rate where it is, the ECB has well and truly reached the zero bound. The only way down now would be to ban money. Their call, it seems.

Mario Draghi, the head of the ECB. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Is anyone prepared to solve the NHS funding crisis?

As long as the political taboo on raising taxes endures, the service will be in financial peril. 

It has long been clear that the NHS is in financial ill-health. But today's figures, conveniently delayed until after the Conservative conference, are still stunningly bad. The service ran a deficit of £930m between April and June (greater than the £820m recorded for the whole of the 2014/15 financial year) and is on course for a shortfall of at least £2bn this year - its worst position for a generation. 

Though often described as having been shielded from austerity, owing to its ring-fenced budget, the NHS is enduring the toughest spending settlement in its history. Since 1950, health spending has grown at an average annual rate of 4 per cent, but over the last parliament it rose by just 0.5 per cent. An ageing population, rising treatment costs and the social care crisis all mean that the NHS has to run merely to stand still. The Tories have pledged to provide £10bn more for the service but this still leaves £20bn of efficiency savings required. 

Speculation is now turning to whether George Osborne will provide an emergency injection of funds in the Autumn Statement on 25 November. But the long-term question is whether anyone is prepared to offer a sustainable solution to the crisis. Health experts argue that only a rise in general taxation (income tax, VAT, national insurance), patient charges or a hypothecated "health tax" will secure the future of a universal, high-quality service. But the political taboo against increasing taxes on all but the richest means no politician has ventured into this territory. Shadow health secretary Heidi Alexander has today called for the government to "find money urgently to get through the coming winter months". But the bigger question is whether, under Jeremy Corbyn, Labour is prepared to go beyond sticking-plaster solutions. 

George Eaton is political editor of the New Statesman.