Liam Halligan

Covid has left Britain printing money like never before

Lockdown is convulsing the British economy on multiple fronts. ‘Going to work’ has been upended, hitting transport and commercial property sectors. The demise of the high street accelerates as online retail surges. Yet the definitive Covid-related economic trend is happening within the national accounts, as the government spends vast sums on furloughing and other business support, while our locked-down economy struggles to generate tax. This has big implications for investors.

The UK borrowed an astonishing £215 billion between April and October, almost twice the annual NHS budget. Our national debt now exceeds £2,000 billion — and just outstripped annual GDP, a first in our peacetime history. Amid renewed lockdown, with furlough extended until spring, voters blink at the mind-boggling numbers. How can we afford this? When will we pay it all back?

Apparently, never. That’s increasingly the view of Britain’s political and policymaking establishment on all sides. The government can keep spending freely, the argument goes, with the Bank of England ‘printing’ money ad infinitum under the ‘quantitative easing’ programme.

Back in 2009, the sub-prime crisis was so serious that cutting interest rates was deemed insufficient. The Bank of England — with the US Federal Reserve and other leading central banks — launched a one-off QE programme, creating money to avoid the disastrous economic and political fallout of a full-scale banking collapse.

But the UK’s £50 billion QE rescue scheme, meant to last just a few months, continued for over a decade. Central bank largesse juiced up share prices and, when used to buy government bonds, meant the state could borrow cheaply. Investment banks and successive governments became addicted to it and by early this year, UK QE had ballooned to £425 billion — eight times the original plan.

The more QE is used, the harder it is to stop without sparking collapse

Since the last financial crisis, then, QE has kept stock markets elevated while shielding ministers from tough spending decisions.

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