The Bank believes this is why the closely watched money supply data have so far showed little sign of improving since the quantitative easing (QE) program began in March, and undermines suggestions that it has been a failure.

Last week the Bank's latest provisional estimates of broad money supply showed it rose 1pc in July, the biggest monthly increase since February, but still a very low level increase.
“It could be consistent with QE having a little more impact on broad money than in previous months – although, compared with the £125bn of purchases that were completed by August, that would still represent a pretty small return on the Monetary Policy Committee's investment,” said Colin Ellis, economist at Daiwa Securities.
However, the Bank suspects that rather than using the money received from the sale of gilts for the purchase of other assets, the investors have been lured into spending it on bank shares.
Because under this scenario the money would effectively remain within the banking sector, this could explain why measures of broad money have not increased as a result.
In the minutes of its August meeting, the MPC conceded that broad money growth had been “surprisingly weak”, but it added: “To some extent, however, that might have reflected the impact of institutional investors' acquisition of banking sector assets, which should, in time, encourage greater bank lending.”
The Bank has maintained that it is still too early to assess the full effects of its asset purchase so far. The MPC's decision at its August meeting to extend QE by £50b to £175b shocked economists, who had widely predicted that the MPC would not pump any more money into the economy after a wave of positive economic data over recent weeks.
They were surprised even more when the minutes revealed that three of the nine members of the committee, including Mervyn King, the Governor, had preferred to expand the program by a bigger £75b but were outvoted by their colleagues.
As a result of the split, and because of the Governor's influence, economists now believe a further extension to QE is likely.
(Source: Telegraph.co.uk)