David Prosser: A bow for QE that may not be deserved

Outlook: So it looks as if the Bank of England's great money printing experiment is over.

A nine to zero vote against extending quantitative easing at December's meeting of the Bank's Monetary Policy Committee (following a split verdict in November) suggests its members think enough kitchen sink has now been thrown at the economic crisis. Assuming – as everyone does – that next month's figures reveal the UK finally made it out of recession in the fourth quarter, that will be it for QE for the foreseeable future, especially given worries about a spike in inflation during the first half of 2010.

Job done then? Well not quite. There is the worry that January's figures might produce another shock (the forecasts for the third quarter were also unanimous in calling the recovery). And even if we do get a couple of quarters of positive growth, the danger remains of sliding back into recession later on next year.

The jury remains very much out on the benefits of QE. Leaving aside the fear that a UK recovery may only be temporary, can we even be sure that the policy is the reason we have come this far? Read the minutes of the December meeting closely and you get the distinct impression that even the MPC itself isn't convinced.

They note that money supply growth – which the Bank always insisted would be the best way to measure whether QE was working – has not materialised. Indeed, money supply is currently falling at an annualised rate of 5.3 per cent.

Previously, the MPC has consoled itself with indicators such as the spread between gilt yields and rates on interest swaps – a measure of investors' views about risk – which had been moving the right way, downwards. This month, however, that trend seems to have reversed.

In other words, the MPC seems to be conceding, it is possible that the arrival of economic recovery is not a result of its QE programme. Does that matter, or to put the question another way, how much worse might the recession have been without QE? Well, it is impossible to know for sure, but this is not a moot point since the risk of the programme is not simply that it might not have worked.

Economists such as Morgan Stanley's Stephen Roach warn the sort of monetary policies now being pursued by central banks all over the world are "breeding grounds" for new asset price bubbles. Stimulating the economy back into life is good, but over-stimulation is not.

The trick is to spot when those bubbles are inflating. As economic sentiment improves, you would expect asset prices to rise, but have, say, stock markets bounced back too quickly? This will be the issue with which the MPC has to wrestle in 2010 and it won't be any easier than working out whether QE delivered a recovery in the year now ending.