Since 2008, annual Government borrowing has increased by three-quarters and debt-to-GDP by over 100%. Averages during the COVID years represent the worst of this, with a 21% proliferation of the national debt between 2019 and 2020. It’s staggering what we now owe, £2.8 trillion.
Issue 14 of INTEREST, from Moneyfacts, includes several insightful stories such as a tax raid on savers, rampant inflation and analysis of the Monetary Policy Committee (MPC). The latest issue also delves into the effects of Quantitative Easing (QE).
Quantitative Easing (QE) flooded the economy with cash it doesn’t need. Repeatedly, there have been warnings that, while effective in the short-term, its market distortions hurt working families of the future. Disguised as a modern, elegant solution to low growth, it needs to be more widely understood why we can’t continue to just ‘print more money’.
Stimulating growth this way embeds deep-rooted inflation, and we should take history’s most infamous hyperinflation horror story, Germany’s post-1918 Weimar Republic, as a cautionary tale. (Read more detail on this story on pages 10 & 11).
Of course, the UK economy is distant from 1920s Germany in many ways; the Bank of England operates with sophisticated tools and robust controls, and we don’t face anywhere near the same level of political and social dysfunction. Yet, the Republic’s story is a stark reminder of the dangers of losing control over monetary policy, particularly QE. The warning is especially relevant today as inflation remains stubbornly high, forcing many to wobble over their trust in the economy.
So, while QE has boosted asset prices, it has eroded the value of cash savings and fixed-income investments. This has created a generational divide, with typically older market participants struggling to maintain their standard of living. Further, the UK’s reliance on housing as a primary store of wealth has left millions priced out of the market.
It (QE) may have saved the economy from the repercussions of locking down, but it has simultaneously propelled rising inequality into distinctly uncharted territory.
For Rachel Reeves, the task is to navigate the UK out of the shadow of QE without forcing another 10 years of austerity on us. But where German economist and finance minister Hjalmar Schacht had the luxury of starting from scratch, Reeves must work within the constraints of the existing system.
Tampering with the base rate also risks entrenching the imbalances of QE even more, something the country neither has the capacity nor appetite for. And worse so, it is also a departure from the very principles that once guided model economic recovery; the legacy of John Maynard Keynes looms large. He advocated for Government intervention to stimulate demand during economic downturns, but he never envisioned the scale of QE deployed since the financial crisis. So, while it aligns with his principle of counter-cyclical policy, its prolonged use has created deformations that he could not have foreseen: swollen assets, exacerbated wealth inequality and a dangerous reliance on cheap debt.
Read more in the latest issue of the INTEREST journal, which you can read for free here.
- ENDS
INTEREST is dispatched in advance of meetings of The Bank of England’s Monetary Policy Committee and is distributed free of charge.
Next Issue 25 April 2025. To receive the latest issue and sign up please visit: https://www.moneyfactsgroup.co.uk/magazines-and-reports/interest/
Have an opinion? Letters to the Editor invited:
interest@moneyfacts.co.uk
Since 2008, annual Government borrowing has increased by three-quarters and debt-to-GDP by over 100%. Averages during the COVID years represent the worst of this, with a 21% proliferation of the national debt between 2019 and 2020. It’s staggering what we now owe, £2.8 trillion.
Issue 14 of INTEREST, from Moneyfacts, includes several insightful stories such as a tax raid on savers, rampant inflation and analysis of the Monetary Policy Committee (MPC). The latest issue also delves into the effects of Quantitative Easing (QE).
Quantitative Easing (QE) flooded the economy with cash it doesn’t need. Repeatedly, there have been warnings that, while effective in the short-term, its market distortions hurt working families of the future. Disguised as a modern, elegant solution to low growth, it needs to be more widely understood why we can’t continue to just ‘print more money’.
Stimulating growth this way embeds deep-rooted inflation, and we should take history’s most infamous hyperinflation horror story, Germany’s post-1918 Weimar Republic, as a cautionary tale. (Read more detail on this story on pages 10 & 11).
Of course, the UK economy is distant from 1920s Germany in many ways; the Bank of England operates with sophisticated tools and robust controls, and we don’t face anywhere near the same level of political and social dysfunction. Yet, the Republic’s story is a stark reminder of the dangers of losing control over monetary policy, particularly QE. The warning is especially relevant today as inflation remains stubbornly high, forcing many to wobble over their trust in the economy.
So, while QE has boosted asset prices, it has eroded the value of cash savings and fixed-income investments. This has created a generational divide, with typically older market participants struggling to maintain their standard of living. Further, the UK’s reliance on housing as a primary store of wealth has left millions priced out of the market.
It (QE) may have saved the economy from the repercussions of locking down, but it has simultaneously propelled rising inequality into distinctly uncharted territory.
For Rachel Reeves, the task is to navigate the UK out of the shadow of QE without forcing another 10 years of austerity on us. But where German economist and finance minister Hjalmar Schacht had the luxury of starting from scratch, Reeves must work within the constraints of the existing system.
Tampering with the base rate also risks entrenching the imbalances of QE even more, something the country neither has the capacity nor appetite for. And worse so, it is also a departure from the very principles that once guided model economic recovery; the legacy of John Maynard Keynes looms large. He advocated for Government intervention to stimulate demand during economic downturns, but he never envisioned the scale of QE deployed since the financial crisis. So, while it aligns with his principle of counter-cyclical policy, its prolonged use has created deformations that he could not have foreseen: swollen assets, exacerbated wealth inequality and a dangerous reliance on cheap debt.
Read more in the latest issue of the INTEREST journal, which you can read for free here.
- ENDS
INTEREST is dispatched in advance of meetings of The Bank of England’s Monetary Policy Committee and is distributed free of charge.
Next Issue 25 April 2025. To receive the latest issue and sign up please visit: https://www.moneyfactsgroup.co.uk/magazines-and-reports/interest/
Have an opinion? Letters to the Editor invited:
interest@moneyfacts.co.uk
